According to the latest report from Cornerstone Research, the number of securities class action lawsuit filings declined slightly in 2022 relative to 2021, although the number of “core” securities suit filings increased slightly compared to 2021. The report, which is entitled “Securities Class Action Filings: 2022 Year in Review,” and which was published in conjunction with the Stanford Law School Securities Class Action Clearinghouse, notes that the number of new lawsuits involving Section 11 allegations rose 2022, likely due to the surge in IPOs during 2021. A copy of the report can be found here. Cornerstone Research’s February 1, 2023 press release about the report can be found here.
According to the Report, there were 208 securities class action lawsuit filings in 2022, compared to 218 in 2021. Notably, the Report, in contrast to many other published analyses of the 2022 filings (many of which reflect only federal court securities suit filings), the Cornerstone Research report includes securities suit filings in both federal court and state court. Thus, the Report’s 2022 filing totals includes 11 standalone state court securities suit filings (compared to 7 standalone state court securities suit filings in 2021). The report also notes that there were 201 “core” securities suit filings (that is, omitting merger objection lawsuit filings), compared to 200 in 2021.
The report notes that federal and state liability suits under the ’33 Act rose 43% in 2022, likely due to the surge in IPO activity in 2021. Combined federal and state 1933 Act filings increased to their highest total since 2019; federal-only Section 11 filings alone were the highest since 2008.
The report notes that while SPAC-related suit filings were an important factor in the overall number of securities suits filed in 2022, the number of SPAC-related suits declined in 2022 compared to 2021; thus, there were 24 SPAC-related suit filings in 2022, compared to 2021, when there were 33. The filing of SPAC-related suits during 2022 declined as the year progressed; thus, there were 18 SPAC-related securities suit filings in the first half of 2022, compared to only six in the year’s second half.
While the number of SPAC-related suits slumped by year’s end relative to 2021, the number of filings against cryptocurrency companies surged during the year. There were 23 crypto-related filings in 2022, compared to only 11 in 2021. The Cornerstone Research press release that accompanied the Report’s publication quotes Stanford Law School Professor Joseph Grundfest as saying that ““Crypto is the new frontier in securities fraud litigation,”
Not only did the number of securities suit filings overall decline in 2022, but the litigation rate – that is, the ratio of securities class action lawsuit filings to the total number of U.S.-listed companies – also declined in 2022. The litigation rate in 2022 was 3.1%, compared to 4.2% in 2021, and compared to 8.9% in 2019. The sharp decline in the litigation rate is attributable not only to the decline in the number of securities suit filings overall, but it is also due to the sharp increase in the number of U.S.-listed companies. The increase in the number of companies is largely attributable to an increase in the number of listed companies due to the wave of SPAC that completed IPOs in 2020 and 2021; as of the end of 2022, there were still hundreds of SPACs that had not yet completed their intended merger.
The report contains some interesting analysis of the securities suit filings over recent years according to the identity of the plaintiffs’ law firm filing the complaint. The report shows that the increase in the number of core federal court filings from 2014 to 2019 was driven in part by a surge in first identified complaints by three law firms: the Rosen Law Firm; Pomerantz LLP; and Glancy Prongay & Murray LLP. By the same token, the decline in filing activity since 2019 appears to have been driven by fewer first identified complaint filings by those three firms, although the filings by the Robbins Gellers, Bernstein Litowitz and Labaton Sucharow firms also seem to have declined during the recent years as well.
A February 1, 2023 Law360 article about the Cornerstone Research report (here), quotes Pomerantz Managing Partner Jeremy Lieberman as confirming that his firm filed fewer cases last year than in 2021 and will likely file slightly fewer this year, though that could change depending on how the market behaves. The article also quotes Lieberman as saying that firms like his have spent the last decade figuring out which cases get results. That has made his firm more selective about the new cases it takes on; Lieberman is quoted as saying. “From our firm’s perspective, we have a better sense which cases are going to succeed and which are going to have less of a chance,” Lieberman reportedly said.
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 $593 billion in 2022 remained doubled from the equivalent figure of $297 billion in 2021 and is in fact “the highest on record.” The 2022 DDL index was 45% higher than the previous high of $409 billion in 2020 and 53% higher than the recent high of $387 billion in 2018. The recent high in the DDL index is drive by mega filings; there were 18 mega filings in 2022 accounting for $508 billion of the DDL loss, or approximately 86% of total DDL. (Mega DDL filings have total disclosure dollar loss of at least $5 billion).
The MDL Index more than doubled in 2022 to $2.4 trillion from $1.022 trillion in 2021. The MDL index over $2 trillion in 2022 represents the third time that MDL has exceeded $2 trillion. There were 38 mega MDL filings in 2021, representing MDL of $2.146 Trillion, representing 88% of 2022 MDL.
This is a host of other information in the Report, which is quite detailed. The Report both merits and rewards a close reading. D&O insurance practitioners would be well advised to read the report at length and in full.