Federal court securities class action lawsuit filings declined in the first half of 2021 to the lowest semiannual levels in several years. Several factors contributed to this relative decline, most significantly the shift by plaintiffs’ lawyers toward filing federal court merger objection lawsuits as individual actions rather than as class actions. In addition, as discussed further below, other factors contributed to the relative decline. The filing levels in the year’s first six months puts the filing for the full year 2021 on pace for the lowest annual filing levels since 2015, after several intervening years in which filings were at historically high levels.
The Number of First Half 2021 Filings: By my count, there were a total of 108 federal court securities class action lawsuit filings in the first half of 2021. (Please note that this tally does not include separate state court securities class action lawsuit filings.) The 108 securities suit filings in the first six months of the year is the lowest semiannual number of filings since the first half of 2015, when there were 102 securities class action lawsuits filed. The 108 federal court securities lawsuit filings in the year’s first half is also the below the 1996-2019 semiannual average of 112 securities suit filings.
The Annualized Pace of Securities Suit Filings This Year: The 108 first half securities suit filings in the first half of 2021 puts the year on pace for a year-end total of 216 securities suit filings, which would be the lowest annual number of securities suit filings since 2015, when there were 208. In the years since 2015 up until this year, there had been a significant run-up in the annual filing totals, with the annual totals during the period 2017-2019 at historically high levels. The number of securities suit filings declined in 2020 relative to the 2017-2019 period, but the 2020 annual total number of securities lawsuit filings of 322 was still well above the annual totals in the years preceding the 2017-2019 surge. The filings so far this year are more consistent with the pace of securities filings in the years before 2017-2019.
Decline in First Half 2021 Filings Compared to the First Half of 2020: The 108 federal court securities suit filings in the year’s first half of this year is well below the 182 securities class action suit filings in the first half of 2020. The 74 fewer lawsuits filed in the first six months of this year compared to the first half of 2020 represents a year over year decline of over 40%.
The Impact in the Number of Federal Court Merger Objection Lawsuit Filings: The most significant difference between the first half of 2020 and this year’s first half is the significant drop off in the number of federal court merger objection lawsuit filings the year. In the first half of 2020, there were 65 federal court merger objection class action lawsuits filed, compared to only 12 in the first half of 2021 – a difference of 53 lawsuits, representing a decline of over 81%. The plaintiffs’ lawyers are still filing merger objection lawsuits in significant numbers, but this year by contrast to recent prior years, the plaintiffs’ lawyers are filing the merger objection suits in federal court as individual actions rather than as class actions (undoubtedly to further diminish the likelihood of court scrutiny of the merger objection lawsuit mootness fee “racket” that the plaintiffs’ lawyers are running).
The Number of Traditional Lawsuit Filings: In addition to the merger objection lawsuits, there were 96 “traditional” securities class action lawsuits filed in the first half of 2021 (that is, securities suit alleging violations of Sections 10(b) of the ’34 Act or Section 11 of the ’33 Act). By way of contrast, there were 117 traditional securities suit filings in the first half of 2020. The decline of traditional filings between the first half of 2020 and the first six months of 2021 of 21 cases represents a decline of nearly 18%. The 96 traditional lawsuit filings in the first half of this year is the lowest semiannual number of traditional securities suit filings since the second half of 2017, when there were 88 traditional securities suit filings.
A Filing Lull in May and June?: Another factor contributing to the relative decline in securities suit filings in the year’s first half compared to last year was the significant drop off in the number of federal court securities class action lawsuit filings during May and June 2021. There were only 17 securities suit filings in May, which was the lowest monthly number of filings this year up until that point. In June, there were only 9 securities suit filings, which is the lowest monthly total of the year. It is hard to know what is causing this apparent recent decline in filing activity; in fact, over time, filing activity tends to ebb and flow, and the apparent decline during May and June could prove to be a short-term phenomenon. It is certainly hard to discern if something else is going on.
District Courts Where the Suits Were Filed: The first half 2021 filings were filed in a broad range of federal district courts. Securities class action lawsuits were filed in 22 different U.S. district courts during the first six months of the year. The federal district court with the most significant number of securities suit filings were the Southern District of New York (27); the Northern District of California (15); the Eastern District of New York (14); and the Central District of California (14). These four districts accounted for 70 of the 105 first half filings, representing 66 percent of the filings in the year’s first six months.
Industries Most Frequently Sued: The first half filings hit companies in a wide variety of industries. The companies named as defendants fall into 52 different Standard Industrial Classification (SIC) Code categories. The SIC Code category with most first half securities suits was SIC Code 2834 (Pharmaceutical Preparations), which had 17 first half filings, representing about 16 percent of all filings in the year’s first half. The SIC Code Group 283 (Drugs) collectively had 21 first half filings, representing about 20 percent of the filings in the first six months of the year. SIC Code Group 737 (Computer Programming, Data Processing) collectively had 14 first half securities suit filings, representing about 13 percent of first half filings. The first half filings against companies in the 283 SIC Code Group and the SIC Code Group 737 together represented one-third of all first half filings.
Securities Suits Against Non-U.S. Companies: There were 15 federal court securities class action filings against non-U.S. companies listed on U.S. exchanges, representing slightly less than 14% of all first half filings. The number and percentage of filings against non-U.S. companies is relatively low compared to recent years, particularly relative to 2020 when filings against non-U.S. companies were a significant factor in the overall number of filings — during calendar year 2020, securities suits against non-U.S. companies represented over 27% of all federal court securities class action lawsuit filings. The 15 federal court securities suit filings against non-U.S. companies involved companies from six different countries, with the largest number (8) involving Chinese companies.
Securities Suits Against IPO Companies: Of the 108 first half federal court securities class action lawsuit filings, 8 involved allegations pertaining to the defendant companies’ IPOs, representing about 7.4 percent of all first half 2021 filings. The IPO years for the companies involved in these lawsuits were 2019 (1); 2020 (5); and 2021 (2).
The number of filings during the year’s first half, while below the elevated filing levels we saw during the period 2017-2020, is at least consistent with more historical levels seen during the years prior to that period. As I noted above, much of the apparent decline in the number of securities suit filings in the first six months of 2021 is attributable to the plaintiffs’ lawyers’ shift in strategy from filing merger objection lawsuits as class actions to filing the lawsuits as individual actions. The lawsuits are still being filed in significant numbers but because the suits are not filed as class actions, the filings are not captured in this tally.
The drop off in the number of filings during May and June this year is a little bit of a mystery. It is not clear at all what accounts for this apparent decline and whether it represents anything other than a temporary anomaly in the ebb and flow of lawsuit filings over time. It will be interesting to watch filings in the second half of the year, to see whether the filings pick back up from the lower levels in May and June.
One significant factor in the number of first half filings – one that seems likely to be a significant number of lawsuit filings in the second half of the year – is the number of SPAC-related securities class action lawsuit filings. By my count, there were 14 SPAC-related securities class action lawsuits filed in the first six months of the year, representing about 13% of first half filings. Given the sheer volume of SPAC related activities in the financial markets, and the likely growing number of de-SPAC transactions that likely will be taking place in the coming months, it seems likely that the SPAC-related litigation will be a significant factor in the year’s second half, as it was in the first half.
Another factor in the year’s first half filings was the number of COVID-19-Related securities lawsuits. By my count there were ten COVID-19-Related securities lawsuit filings in the year’s first six months (compared to 24 during all of 2020). The ten COVID-19-related securities suit filings in the year’s first half represents about 9.3% of all first half filings. While it seems likely that there will be additional COVID-19-related securities suits filed in the year’s second half, it also seems like the COVID-19 lawsuit filings will not be as significant of a factor as they were in the year’s first half.
A Final Note about Data and Methodology: I count each company that has been sued in a securities class action lawsuit for essentially the same allegations only once, regardless of the number of complaints actually filed. This methodology may differ from the methodology used by other public sources that track securities lawsuit filings, which it turn may cause my tallies to differ from other published tallies.
In tracking the securities lawsuits, I rely on several different sources, including the Stanford Law School Securities Class Action Clearinghouse; Law 360; Justia; ISS Securities Class Action Services; and Stanford Securities Litigation Analytics. I also audit my tally against other sources periodically throughout the year.