Securities class action lawsuit filings “plummeted” in 2021 compared to recent prior years, largely as a result of declines in M&A litigation and in the number of “core” Rule 10b-5 lawsuits, according to the latest annual report from Cornerstone Research. According to the report, entitled “Securities Class Action Filings: 2021 Year in Review,” the number of new federal and state securities class action lawsuit filings decline 35% compared to 2020, but nevertheless remained “in line” with the 2012-2016 average. The report can be found here. Cornerstone Research’s February 2, 2022 press release about the report can be found here. My summary of the 2021 federal court securities class action lawsuit filings can be found here.


The Number of Lawsuits: The Cornerstone Research report is unique among the publicly available surveys of securities class action lawsuit filings as it is inclusive of both federal and state filings. According to the report, there were 218 securities class action lawsuits filed in federal and state courts in 2021 (210 in federal court, eight state court only Section 11 actions). The number of 2021 filings were down 35% compared to the 333 federal and state securities class action lawsuit filings in 2020.


The Reason for the Relative Decline in the Number of Filings: According to the report, the 2021 decline in the number of filings was driven by an 82% drop in the number of M&A-related filings and a 17% drop in the number of “core” federal Rule 10b-5 filings without Section 11 allegations. The number of M&A class action filings fell to its lowest level since 2014, despite a substantial increase in the M&A activity during the year. (As I noted in my report about the 2021 filings to which I linked above, the plaintiffs’ lawyers have not stopped filings M&A-related lawsuits; they are simply filing the suits as individual actions rather than class actions, so the lawsuits do not show up in the class action filings numbers.)


State Court Securities Suit Filing Patterns: There were a total of 34 state and federal securities lawsuits alleging only violations of the ’33 Act in 2021, compared to 35 in 2020. Of the 34 2021 filings, only eight were state court only filings (compared to 14 in 2020) and 5 were parallel state and federal actions (compared to 14 in 2020), while 21 were federal only (compared to only 13 in 2022). The shift away from state court only and parallel state and federal filings toward federal only filings is consistent with overall filing patterns since the Delaware Supreme Court’s March 2020 in the Sciabacucchi decision. The 34 ’33 Act filings in 2021 is consistent with the 2011-2020 average of 33 such filings, which is interesting given that IPO activity was up so significantly in 2021 compared to recent years. The report notes that the number of traditional IPO in 2021 increased 87% in 2021 compared to 2020; the report suggests that “the boom in IPO activity in 2021, especially that involving SPACs, may lead to substantial future litigation.”


SPAC-Related Securities Suit Filings: The report notes a number of 2021 filings trends, the most “dominant” of which was the number of SPAC-related securities lawsuit filings. According to the report, there were 32 SPAC-related securities suit filing in 2021, representing a “sixfold” increase from the five SPAC-related filings in 2020. Of the 2021 filings, 11 filings (34%) were related to the auto industry. The median lag time between a de-SPAC transaction and a lawsuit filing was much greater during the period 2019-2020 (271 days) than it was in 2021 (141 days). Since 2019, 61% of all “core” federal SPAC-related securities suit filings have alleged a class period start date that falls between the date of the de-SPAC transaction announcement and the date of the completion of the transaction.


Litigation Rate: The figures above emphasize the number of lawsuits, but the more interesting way to consider the data is to compare the number of lawsuits to the number of public companies. Reversing a long term trend, the number of public companies increased in 2021 (as well as in 2020) while the number of securities lawsuits in 2021 declined compared to recent years of elevated litigation activity. As a result, the litigation rate (that is, the number of lawsuits compare to the number of companies) decline in 2021. The percentage of companies hit with securities suits in 2021 fell to 4.2%, the lowest point in seven years and “in line” with the 1997-2020 average of 4.0% — compared to a 2020 percentage of 6.3% and the record 2019 percentage of 8.9%. The 2021 “core” filings litigation rate of 3.8% was at its lowest point in six years and compares to a 2020 core rate of 4.2% and a 2019 core rate of 5.4%. Though the amount of M&A-related federal court securities class action litigation fell in 2020 and 2021, “the risk of core stock price drop litigation remains elevated above pre-2015 levels, even after two consecutive declines.”


S&P 500 Litigation Rate: Of companies in the S&P 500 at the beginning of 2021, about one in 45 companies (2.2%) were subject to a core federal filing. This percentage, which compares to an equivalent 2020 percentage of 4.4% and a 2019 percentage of 7.2%, is the lowest since 2015 and the third lowest on record.


Securities Suits Against Non-U.S U.S.-Listed Companies: There were 41 securities suits filing in 2021 against companies headquartered outside the U.S., compared to 74 in 2020. The 41 suits against non-U.S. companies represented 21% of all 2021 securities suit filing, whereas the 2020 suits against non-U.S. companies represented 34% of all 2020 filings. During the period 2012-2019 suits against non-U.S. companies on average represented 21% of all securities suit filings. The percentage of non-U.S. companies subject to core federal filings decreased during 2021 for the first time since 2013 dropping to about 3.5%, roughly in line with the 2000-2020 average of 3.2%.


Plaintiff’s Firms: Three law firms – The Rosen Law Firm, Pomerantz LLP, and Glancy Prongay & Murray LLP – have been responsible for 61% of the first identified core securities class action complaints filing in federal court from 2015 to 2021. Core federal filings made by these three firms fell by 8% in 2021 based on first identified complaint, while filings made by other firms decreased by 20%. From 2015 though 2020, these three firms have had 55% of their core federal operative class action complaints dismissed, compared to 44% for all other plaintiff firms.


Reliance on Short-Seller Reports: In 2021, 40 core federal first identified complaints, representing about 21% of all filings, reference reports published by short sellers. Of these 40 core federal filings, 31 – or about 78% — were made by four law firms. The Rosen Law Firm, Pomerantz LLP, and Glancy Prongay &  Murray LLP were responsible for 26 of these complaints (65%), while a fourth law firm, Block & Leviton LLP, was responsible for an additional five (13%) of the core federal complaints filed in reliance on short seller reports.


Case Resolutions: For the period 1997 through 2021, 46% of core federal filings were settled, 43% were dismissed, 10% are continuing, with only very small percentages of cases going to trial.



Shareholder Losses: The report reflects two difference measures of investor losses represented in the securities class action lawsuits during the year. The first of these is Disclosure Dollar Loss (DDL) which measure the dollar value change in the defendant company’s share price between the trading day immediately prior to the end of the class period and the trading day immediately after the last day of the class period. The second of these is Maximum Dollar Loss (MDL) which measure the difference in the defendant company’s share price between the trading day during the class period with the highest market capitalization and the share price on the day following the end of the class period.


The DDL Index of $274 billion in 2021 remained virtually unchanged from the equivalent figure of $273 billion in 2020, although the 2021 figure is down 17% from the all-time high in 2018 of $331 billion. The 2021 DDL index value remained substantially higher than the 1997-2020 average of $142 billion. While the overall DDL index remained steady between 2020 and 2021, the median DDL per filing more than doubled in 2021 to $372 million compared to $182 million in 2020. 10 mega DDL filings in state in federal court in 2021 accounted for 56% of the total DDL ($144 billion) compared to 14 mega DDL filings in 2020 representing 66% of the total DDL ($178 million). (A mega DDL case is one with DDL of at least $5 billion).


The MDL Index declined 41% in 2021 to $941 million, compared to $1.599 billion in 2020. The 2020 MDL was still more than 34% above the 1997-2020 average of $701 million. There were 20 mega MDL filings in 2021, representing MDL of $606 million, 67% of 2021 MDL; by way of comparison there were 29 mega MDL filings in 2020, representing MDL of $1.3 billion, 83% of 2020 MDL. (A mega MDL case is one with MDL of at least $10 billion).