Securities class action lawsuit filings in the first half of 2020 were more than 15% below the number of filings in the first half of each of the last three years, according to a new report from NERA Economic Consulting. The report, entitled “Recent Trends in Securities Class Action Litigation: 2020 H1 Update” (here), projects a year-end total number of filings below the last three years’ totals, but still well above the totals for the years prior to 2017. NERA’s July 17, 2020 press release, which contains a detailed summary of the findings illustrated in the report, can be found here. My analysis of the first half filings can be found here.
According to the report, there were 175 federal court securities class action lawsuit filings in the first half of 2020. (The numbers in the report do not reflect securities class action lawsuits filed in state court.) The first half filings project to a year-end total of 350 federal court securities suits, which would represent a 16.5% decrease compared to the 421 federal court suits that NERA reports were filed in 2019. Though the 2020 first half filings project to a year-end total that would be below the annual total in each year during the period 2017-2019, a total of 350 securities suit filings would be above the annual total in any year prior to 2017 (other than 2001, when the filing figures were inflated by the IPO laddering cases).
Of the first half 2020 filings, 70 were merger objection lawsuits, with the remainder consisting of standard cases under Rule10b-5, Section 11, and/or Section 12, and other types of securities class actions. While there were fewer of all types of cases in the first half of 2020, the mix of cases is “consistent with the mix observed in 2019, with fewer merger objections filed than standard cases.”
The mix of companies hit with non-merger objection lawsuits reflects a shift in the industries targeted in 2020 compared to recent years. The industrial sector that saw the most securities litigation activity in the first half of 2020 was the Electronic Technology and Technology Services Sector, which accounted for 23% of new filings. If this concentration were to continue for the remainder of the year, 2020 would be the first year during the period 2016-2020 in which Health Technology and Services sector was not the most frequently targeted sector.
According to the report, 11 of the first half 2020 securities suit filings were COVID-19 related securities suit filings. (My own tally of COVID-19 related securities suits filings during the year’s first half was 15; for a discussion of the difference in the counting, please see the discussion in my recent post about the coronavirus outbreak and D&O insurance and liability issues, here.) The report notes that about half of the COVID-19 related securities suit filings involved defendants in the Health Technology and Services and in the Electronic Technology and Technology Services sectors.
The aggregate NERA defined investor losses in cases alleging violations of Rule 10b-5, Section 11 and/or Section 12 for the first six months of 2020 was $244 million, an amount that projects to a year-end total of $488 million, slightly below the $498 year-end total in 2019.
The mix of case resolutions in the first half of 2020 reflects a higher proportion of dismissals and a lower proportion of settlements compared to the most recent years. There were 36 case settlements in the first six months of 2020, which projects to a year-end total of 72, which would represent a new record low annual number of settlements for the 2011-2020 period. There were 135 dismissals in the year’s first half, which annualizes to a year-end total of 270 case dismissals, which would be the highest number of any year during the period 2011-2020. The aggregate number of dismissals and settlements for the year’s first half projects to a year-end total of 342 total case resolutions, which would be slightly above the 312 case resolutions in 2019 but in line with the 338 case resolutions in 2017 and 339 case resolutions in 2018.
The average settlement amount of all securities suit settlements in the first half of 2020 (excluding merger objection suit settlements and zero dollar settlements) was $65 million, well above the 2019 average settlement amount in 2019 of $28 million. However, the average settlement amounts across a measurement period can be distorted by very large settlements; when the same data are reviewed but with settlements over $1 billion excluded, the average settlement amount for the first six months of 2020 is only $37 million, compared to a comparably derived average settlement amount in 2019 of $28 million. An annual average settlement of $37 million would represent the highest average settlement amount since 2016.
The median securities suit settlement amount (excluding merger objection suits, settlements over $1 billion, and zero dollar settlements) for the first six months of 2020 was $13.4 million, compared to $12 million in 2019. A year end median of $13.4 million would be the highest annual median settlement amount since 2016.