The number of federal court securities class action lawsuits filed during 2021 declined significantly compared to the number filed in 2020, and the number of 2021 filings was sharply below the elevated number of securities suits filed each year during the period 2017-2019. The most significant factor in the 2021 drop-off was the decline in the number of federal court merger objection class action lawsuit filings during the year, although there were other factors at work as well. Though the number of filings in 2021 declined relative to the elevated number of annual filings during period 2017-2020, the number of 2021 filings was above longer-term historical annual filings levels prior to 2017, as discussed below.
The Number of Federal Court Securities Class Action Lawsuits: According to my tally, there were 210 federal court securities class action lawsuits filed in 2021, representing a 34% decline from the 320 federal court securities suit filings in 2020. (Please note that these figures reflect only federal court securities class action lawsuit filings; the filing numbers do not include state court securities class action lawsuit filings during the year.) The 2021 securities suit filing numbers represents an even more dramatic decline compared to the annual average number of lawsuits filed during the 2017-2019 period, a period during which the number of securities lawsuits surged. The annual average number of securities suit filings during the 2017-2019 period was 405; the 210 securities suit filings in 2021 represents a decline of about 48% compared to the elevated annual average level of filings during that recent period.
The Impact of Federal Court Merger Objection Lawsuit Filings: The most significant factor in the decline in the number of securities suit filings in 2021 was the decline in the number of federal court merger objection class action lawsuits. By my count, there were only 18 federal court merger objection class action lawsuits filed in 2021, representing only about 8.5% of all federal court securities class action lawsuit filings during the year. By way of comparison, there were 102 federal court merger objection class action lawsuit filings in 2020, representing 31.8% of all securities suit filings during the year.
The 2020 merger objection lawsuit filings themselves represented an even sharper decline in merger objection suit filings compared to the 2017-2019 period; there were 160 merger suit filings in 2019, 182 in 2018, and 198 in 2017. The 18 merger objection class action filings in 2021 represents a massive drop from the numbers of these types of lawsuits that were filed during the years 2017-2020.
It is important to note that the plaintiffs’ lawyers are still filing merger objection lawsuits, they are just filing the lawsuits as individual actions rather than as class actions. The threat of merger-related litigation has not gone away, but the current form of the threat just is not reflected in class action litigation statistics.
When the merger objection lawsuit effect is taken out of the equation, the drop-off in the number of securities suit filings during 2021 compared to 2020 is significantly less severe. Thus, there were 192 “traditional” securities suit filings in 2021, representing only about an 11.9% decline from the 218 traditional filings in 2020.
And everything is relative – though the number of 2021 securities suit filings reflects a decline both respect to 2020 and with respect to the years 2017-2019, when filings surged, the 2021 filing levels are much closer to historical filing numbers. Indeed, the 210 securities suit filings in 2021 are actually above the annual average number of filings during the pre-surge years from 1997 to 2016, when an average of 193 securities class action lawsuits were filed each year.
The Courts in Which the 2021 Securities Suits Were Filed: The securities suits filed in federal courts in 2021 were filed in many different courts throughout the United States. During 2021, plaintiffs’ lawyers filed securities suits in 31 different federal courts. However, the vast majority of suits were filed in federal courts in California and in New York. The federal district court with the highest number of securities suit filings in 2021 was the Southern District of New York, which had 57 securities suit filings. The Eastern District of New York had another 26 securities suit filings in 2021, while the Western District of New York had an additional two filings, bringing the total number of securities suits filed in federal courts in New York to 85, representing about 40% of all of the 2021 securities lawsuit filings.
In addition, there were 30 securities lawsuits filed in the Northern District of California, with an additional 23 filed in the Central District of California and another three filed in the Southern District of California, bringing the total number of securities suits filed in California federal courts to 56, representing 26.6% of all 2021 securities lawsuit filings. Together the filings in New York and California federal courts accounted for 136 of the 2021 federal court securities class action lawsuit filings, representing just under two-thirds (64.7%) of all 2021 securities suit filings.
The Companies That Were Targeted: The 2021 securities suits were filed against a wide variety of kinds of companies. The companies hit with securities suits in 2021 included firms in 79 different SIC Code categories. As has been the case for many years, the SIC Code category with the highest number of securities class action lawsuits is SIC Code Category 2834 (Pharmaceutical Preparations); 34 of the 2021 securities suit filings were in the 2834 SIC Code category. A total of 47 companies with SIC codes in SIC Code Industry Group 284 (Drugs) were hit with securities suits in 2021, representing 22.3% of all securities suit filings during the year. In addition, seven companies with SIC Codes in SIC Code Industry Group 384 (Surgical, Medical, and Dental Instruments and Supplies) were hit with securities suits in 2021, bringing the total of companies with life sciences industry SIC Codes to 54, representing 25.7% of all 2021 federal court securities class action lawsuit filings.
Another industry group with a significant number of 2021 securities class action lawsuit filings was SIC Code Industry Group 737 (Computer Programming, Data Processing, and Other Computer Related Services). 32 companies with SIC Codes in this industry group were hit with securities class action lawsuits in 2021, representing 15.2% of all 2021 securities suit filings. Together, the filings against companies in the life sciences and high-tech industry groups totaled 86, representing about 41% of all 2021 securities suit filings.
Securities Suit Filings Against Non-U.S. Companies: A significant number of companies domiciled outside the U.S. were the target of securities suit filings during 2021. By my count, 41 non-U.S. companies were hit with federal court securities suit filings in 2021, representing about 19.5% of all filings during the year. Companies from 15 different countries outside the U.S. were targeted. The country with the highest number of companies to be hit with securities suits in 2021 was China, with 17, followed by Canada, with 6. Bermuda, Cayman Islands, Israel, and the United Kingdom each had two companies sued.
Securities Suits Against IPO Companies (Other than SPAC Companies): Just as there was a significant amount of IPO activity in 2021, there was a significant amount of IPO-related securities class action activity as well. According to Renaissance Capital (here), there were a total of 397 traditional IPOs that raised $50 million or more (excluding SPAC IPOs) in 2021, representing a nearly 80% increase compared to the 221 IPOs in 2020. With respect to the litigation activity, there were a total of 30 IPO-related securities class action lawsuit filings in 2021, representing 14.2% of all securities class action lawsuit filings during the year. Of the companies hit with IPO-related securities class actions during 2021, one was from the IPO class of 2019, ten were from the IPO class of 2020, and 19 were from the IPO class of 2021. Given the volume of IPO activity in 2021, the elevated numbers of suits against companies in the IPO class of 2021 arguably is not a surprise.
Discussion
I suspect that many commentators and observers commenting on the level of securities lawsuit filing activity are going to get stuck on the headline that securities suits filings are down more than a third compared to 2020. The fact is that much of the movement in the filing levels over the last few years, including also in 2021, was due to increases and decreases in the number of federal court merger objection securities class action lawsuit filings. As the number of these filings ramped up in the 2017-2019 period, the total number of securities suit filings skyrocketed; as the numbers of these filings fell in 2020 and declined more sharply in 2021, the overall numbers of filings declined. But as I noted above, when the effects of the merger activity class action filing activity are stripped out, the relative declines in the number of filings are much more modest. The filing levels in 2021 simply returned to long-term historical levels, compared to the artificially elevated levels that prevailed during the 2017-2020 period.
From my perspective, the question is not what happened to securities suit filings in 2021, since the filings levels simply returned to more normal levels; the question is what was going on during 2017-2020 that drove the filing number up above the historic levels. The answer has to do with merger objection class action lawsuit filings. During the period 2017-2020, the plaintiffs’ lawyers were filing merger objection suits as federal court class action lawsuits. During 2021, the plaintiffs’ lawyers continued to file merger objection suits, but they filed them as individual actions rather than class actions, causing the class action numbers to decline while overall litigation activity remained essentially unchanged.
Some Final Notes 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 counting methodology may differ from the methodology used by other public sources that track securities lawsuit filings, which in 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 resources periodically throughout the year.
One particular way that my securities suit count may differ from other public sources has to do with six securities class action lawsuits that were filed against Goldman Sachs and Morgan Stanley during 2021. Each of these lawsuits contains similar allegations; the complaints in the cases essentially allege that the two investment bank defendants were able to unload their shares in six specific companies in advance of the collapse of Archegos Capital Management. The allegations in each case are similar, and the defendants named are the same. However, the plaintiff class in each lawsuit is different. In each of the six complaints, the plaintiff purports to represent investors who held shares of one of the six different companies whose securities the defendants unloaded in advance of the Archegos collapse. Because the complaints were filed separately; have not been consolidated; and are each filed on behalf of separate classes, I have counted the six complaints as separate actions – just as way back in 2001-2002, I counted each one of the 313 IPO laddering lawsuits separately. Other publicly available sources may not count these lawsuits separately, which may cause my 2021 securities class action lawsuit tally to be slightly higher than other that of other public sources.