The number of securities class action lawsuit filings in the first half of 2022 was up slightly compared to the number of filings in the second half of 2021, according to a new report from Cornerstone Research. The report, which is entitled “Securities Class Action Filings: 2022 Midyear Assessment,” contains extensive analysis of the first half 2022 filings, including in particular some interesting discussion about SPAC-related securities litigation. The report itself can be found here. Cornerstone Research’s July 27, 2022 press release about the report can be found here.
According to the report, there were 110 securities suit filings in the first six months of 2022. (The Cornerstone Research report includes in its tally both federal court and state court securities suit filings, and so the report’s numbers differ slightly from other published tallies). By way of comparison, there were 107 securities suit filings in the second half of 2021.
While the number of first half 2022 filings was up slightly compared to the second half of 2021, the first half 2022 filings were actually down very slightly compared to the first half of 2021, when there were 111 securities suit filings. The first half 2021 number of filings is also slightly below the average number of semianuual filings (114) during the period 1997 through the 2021.
The number of core filings (those suits without M&A allegations) in the year’s first half (105), was actually up compared to both the first and second halves of 2021 – there were 99 core filings in the first half of 2021 and 101 core filings in the second half of 2021. The 105 first half 2022 core filings were also above the semiannual number of core filings (96) during the period 1997-2021.
The report details a number of “trend cases” that affected the amount of core filing activity during the first half of 2022. There were, the report notes, 18 SPAC-related securities lawsuit filings during the first six months of 2022. During the same time period, there were also 10 cryptocurrency-related securities suit filings and eight COVID-19-related securities suit filings.
The report contains several pages of interesting analysis breaking down the SPAC-related securities suit filings in several different ways. Among other things, the report shows the lag time between the date of the De-SPAC transaction and the date of the initial federal court lawsuit filings in the first half 2022 filings was 243 days. (By way of comparison, the median lag time between the de-SPAC transaction and the lawsuit filing during the period 2019 through the first half of 2022 is 169 days.) The report also analyzes the class period start date for the SPAC-related securities suits during the period 2019 through the second half of 2022. The analysis shows that since 2019, 56% of all core federal SPAC filings alleged a class period start date between the date of the announcement of the de-SPAC transaction and the completion of the transaction.
While one way to look at securities lawsuit filing activity is simply to look at the total tally of suit filings, another arguably more meaningful way to measure filing activity is to look at the number of lawsuit filings relative to the number of U.S. exchange-listed companies. During the period 2017-2019, this ratio soared to over 8 percent. However, in the years since, this ratio has declined each year. In 2021, the litigation rate was down to 4.2%. At the current pace and based on the amount of litigation in the year’s first six months, only 3.3% of companies listed on the major U.S. exchanges will be subject to a core or M&A filing in 2022. By way of comparison, the annual average litigation rate for the period 2008 to 2021 was 4.9%. The decline in the litigation rate in more recent years is attributable to two factors: one, a decline in the absolute number of lawsuit filings since the 2017-2019 period; and two, an increase in the number of U.S listed companies (among things due to the recent increase in IPO activity relative to prior periods).
The number of securities suit filings against non-U.S. companies listed on U.S. exchanges fluctuates from year to year. As recently as 2020, there were a total of 74 securities suit filings against non-U.S. companies, represented more than 30% of all core federal filings. In the first half of 2022, there were 18 securities suit filings, on pace to reach 36 filings by year end, representing less than 20% of all core federal filings. While the 2022 filings against non-U.S. companies are on pace to come in below recent years, the projected number of 2022 filings against non-U.S. companies would be consistent with the 2012-2016 annual average of 33.
While the number of securities suit filings during the first six months of 2022 remained at or near long term historical measures, the aggregate levels of market capitalization losses that the 2022 YTD filings represent is “at historically high levels” according to two measures, Maximum Dollar Loss (MDL) and Disclosure Dollar Loss (DDL).
MDL measures the dollar-value change in the defendant firm’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period. The MDL Index measures the aggregate MDL for all federal and state filings over a period of time. During the first half of 2021, the MDL increased sharply to about $1,573 billion, more than double the second half 2021 total of $630 billion, and more than triple the 1997-2021 seminannual average of $496 billion.
DDL is the dollar-value change in the defendant firm’s market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period. The DDL Index measures the aggregate DDL for all federal and state filings over a period of time. In the first six months of 2022, the DDL “spiked” to $482 billion, more than doubling the second half 2021 measure of $210 billion. The semiannual average DDL during the period 1997-2021 was $101 billion.
The main cause of this increase in the measure of market capitalization losses is the number of mega cases filed during the first half of 2022. A mega case is one that has DDL of at least $5 billion or MDL of at least $10 billion. There were 12 DDL cases already in the first six months of 2022 compared to 13 in all of 2021. There have already been 18 mega MDL filings in 2022 compared to 24 in all of 2021. The number and total index value of mega DDL and MDL cases is on pace to be at historic highs in 2022.
While I have attempted to summarize the main points of the Cornerstone Research report in this blog post, the report is in fact very detailed and contains a great deal of information and analysis far beyond what I have summarized here. The report is very interesting and worth reading at length and in full.