There were fewer than 300 total securities class action lawsuit filings in 2021 for the first time since 2016, according to the latest report from NERA Economic Consulting. While the report, entitled “Recent Trends in Securities Class Action Litigation: 2021 Full-Year Review,” notes that securities suit filings declined in 2021 compared to recent years, largely due to a decline in merger objection lawsuit filings, the number of 2021 securities suit filings is “well within pre-2017 historical range.” Aggregate, average, and media settlements also declined in 2021 relative to prior years, according to the report. The report can be found here. NERA’s January 25, 2022 press release about the report can be found here. My own report on the 2021 securities suit filings can be found here.
According to the NERA report, there were 205 securities class action lawsuit filings in 2021, compared to 321 in 2020, representing a decline of over 36%. The report also notes that the 205 securities suit filings in 2021 was “more than 50% lower than the annual level of filings recorded each year between 2017 and 2019.”
The report notes that the number of securities suits declined in both 2020 and 2021, which were years in which the number of publicly traded companies increased, after years in which the number of public companies overall either declined or fluctuated within narrow margins. The report itself does not break down the number of suits relative to the number of companies into a litigation rate, but the 205 securities suits in 2021 compared to 5,956 public companies (as specified in the report) suggests a litigation rate of 3.4% (inclusive of class action merger objections suits). Using the equivalent data in the report for the years 2020 and 2021 (inclusive of merger objection suits) shows a 2020 litigation rate of 6.2%, and a 2019 litigation rate of 8.6%. These numbers show that as the number of public companies has increased and the annual number of securities class action lawsuits has decreased, the annual litigation rate has declined as well. The number of class action merger objection suits somewhat distorts the analysis here, but the figures are directionally consistent.
Several factors contributed to the decline in securities class action lawsuit filings during 2021, most notably the decline in the number of class action merger objection lawsuit filings. The number of class action merger objection lawsuit filings decreased over 85% from 103 new filings in 2020 to only 14 in 2021. (The NERA report does not mention it, but as I noted in my year end report, the plaintiffs’ lawyers have not stopped filing merger objection lawsuits; instead, starting in 2020 and increasing in 2021, the plaintiffs’ lawyers have been filing merger objection lawsuits as individual actions rather than as class actions.)
The report also shows that lawsuit filings against companies in the electronic technology and technology services industries surged during 2021. Lawsuits against companies in sector (exclusive of merger objection lawsuits) representing 31% of securities suit filings in 2021, compared to 22% in 2020, and up from only 13% in 2017. Securities suits against companies in the Health Technology and Services sector increased to 26% of all 2021 suits (exclusive of merger objection lawsuits), compared to 22% in 2020. Lawsuits against companies in the Finance sector decreased to 11% of 2021 securities suit filings (exclusive of merger objection suit filings), compared to 17% in 2020.
With respect to the securities suit filings in 2021 that alleged violations of Rule 10b-5, Section 11 or Section 12, 40% alleged violations related to misleading future performance, and 24% alleged missed earnings guidance.
The report also provides detail with respect to categories of event-driven and special cases. For example, the report breaks down the number of COVID-19 securities class action lawsuit filings. The report’s figures are substantially higher than those in my own COVID-19-related securities lawsuit filing tally. The report tallies a total of 53 COVID-related securities suits during the period March 2020 to the end of 2021. (My equivalent tally for the same period is 42.) The report states that there were 33 COVID-related securities suits filed in 2020 and 20 in 2021. The report also states that there were 24 SPAC-related securities suits filed in 2021. (My 2021 tally of SPAC-related securities suits is 31.)
According to the report, there were 239 case resolutions in 2021 through dismissal or settlement, “the lowest level of case resolutions since 2015,” compared to 312 case resolutions in 2020. Of the 239 case resolutions in 2021, 153 were dismissals and 86 were settlements. At least part of the decline in case resolutions during 2021 relative to 2020 and prior years is due to the reduced number of merger objection lawsuit case resolutions (perhaps as a result in the overall reduction in the number of merger objection lawsuit filings in 2020 and 2021). By contrast, the number of non-merger objection case resolutions in 2021 was the highest in the last 10 years. For each filing year since 2015, more cases have been resolved in favor of the defendant than have been settled; this is consistent with historical trends in which settlements typically occur later in the process. 83% of cases resolve in four years or less, and over half of cases are resolved between one and three years of filing.
Of the securities class action lawsuits filed between January 1, 2012 and December 31, 2020, a motion to dismiss was filed in 96% of the cases. 73% of those cases resulted in a decision. Of the cases with a decision, the motion was granted in 56% percent of cases while only 19% were denied. In another 17% of cases, the plaintiff voluntarily withdrew the action, while in 2% the defendants withdrew their motion.
The aggregate, average, and median settlement values for 2021 all declined relative to 2020. The aggregate value of settlements, according to the report, was $1.8 billion, representing a significant decline from the $5.2 billion in aggregate securities suit settlements in 2020, and well below the $2.2 billion (adjusted for inflation) in 2019.
The average settlement amount also declined in 2021. Because outlier large settlements can skew averages, the report caps all settlements over $1 billion in calculating the average. Using this methodology, the average settlement in 2021 was $21 million, compared to an inflation adjusted average (with +$1 billion settlements excluded) of $32 million. If the over $1 billion settlements are not excluded, the 2020 average calculates to $47 million. The $21 million annual average settlement in 2021 was the “lowest annual average within the most recent ten years.”
The decline in the annual average for 2021 is a result in the shift in the size of settlements during the year toward smaller settlements. Thus in 2021, nearly 60% of settled cases settled for less than $10 million (compared to 44% in 2020), while only 4% of 2021 securities suit settlements settled for greater than $100 million, compared to 9% of settlements in 2020.
The median securities suit settlement value in 2021 was $8 million, substantially below the inflation adjusted median settlement value in 2020 of $14 million. The 2021 median settlement value is the lowest recorded median value since 2017 (when the inflation adjusted median settlement value as $7 million).
The 2021 ten largest settlements listed in the NERA report totaled nearly $1 billion ($985.1 million) and accounted for more than 50% of the aggregate settlement amount reached in 2021. (Interestingly, the NERA report does not include in the 2021 tally the $1.21 settlement in the Valeant Pharmaceuticals International case, which the recent ISS Securities Class Action Services report did include in the 2021 securities suit settlements.)