The number of federal and state court securities class action lawsuits filed in the first six months of 2023 was up compared to the number of filings in the second half of 2022, but in line with the number of filings in the first half of 2022 as well as with the long-term half-year average number of filings, according to the latest report from Cornerstone Research. The report, written in conjunction with the Stanford Law School Securities Class Action Clearinghouse, is entitled “Securities Class Action Filings: 2023 Midyear Assessment,” and can be found here. Cornerstone Research’s July 20, 2023, press release about the report can be found here.
The Number of Securities Lawsuit Filings: According to the report, there were 114 federal and state court securities class action lawsuits filed in the first half of 2023. (There was one standalone state court securities suit filed in the year’s first six months, meaning that there were 113 federal court suits filed.) The filing of 114 securities suits in the year’s first half is consistent with the 115 federal and state court securities suit filings in the first six months of 2022, but up from the 93 federal and state court suits filed in the second half of 2022. The 114 first-half securities suit filings equal the 1997-2022 semiannual average of 114. The number of “core” filings (those without M&A objection allegations) in the first half of the year equaled the number of core filings in the first half of 2022 – 110.
The Litigation Rate: The number of securities class action filings alone only tells part of the picture; the litigation rate (that is, the number of filings relative to the number of exchange-listed companies) indicates the likelihood of a U.S.-listed company getting hit with a securities suit in any given year. The number of first half securities suit filings relative to the number of public companies indicates an annualized litigation rate of 3.4%, in line with the 2022 percentage (3.1%) but down significantly from the 2021 rate (4.2%), as well as from the 2009-2022 annual average (4.9%), and well below the 2019 record high rate of 8.9%. (The litigation rate for the years 2017 through 2019 were significantly inflated by the numbers of federal court merger objection lawsuits filed during those years).
Securities Suit Filings Trends: The report notes several securities suit filing trends that contributed to the number of first half filings, including the numbers of filings involving cryptocurrency, SPACs, COVID-19, and the 2023 Banking Crisis. There were 11 cryptocurrency-related first half filing; annualized, the first half cryptocurrency filings would be near the record number of cryptocurrency related filings in 2022 (23). There were seven SPAC-related securities suits filed in the year’s first six months, compared to 24 for the full year 2022. There were six COVID-19-related securities suits filed in the first half of the year, compared to 20 for the full year 2022. There was a total of six securities suits filed related to the banking crisis (inclusive of one filed in late 2022).
State Court Securities Suits and M&A Litigation: Two securities suit filing trends that impacted the overall number of filings in recent years have been the numbers of state court securities suit filings and the number of federal court merger objection lawsuit filings.
State court filings surged following the U.S. Supreme Court’s 2018 holding in the Cyan case (in which the court held that state courts retain concurrent jurisdiction for Securities Act liability actions), but then began to decline after Delaware’s Supreme Court 202 decision in the Sciabacucchi upheld the validity of federal forum bylaws. There were only three state court securities suit filings in the first half of 2023, of which two had parallel federal court filings and only was standalone.
With respect to the merger objection suits, which surged to record levels in the period 2017-2020, the filing levels have fallen dramatically; there were only four federal court merger objection class action lawsuit in the first six months. (Readers should know that these lawsuits are still being filed, but because plaintiffs’ lawyers, for tactical reasons, are filing them as individual actions rather than class actions, the filings don’t show up in the class action figures.)
Litigation Against Non-U.S. Companies: There were 20 cord federal court securities lawsuits filed against non-U.S. U.S-listed companies in the first half of 2023, suggesting an annualized number of securities suit filings against foreign companies of 40, compared to 2022 full-year totals of 34 and 2021 full-year totals of 41, slightly below the 2014-2022 annual average of 45 filings against non-U.S. firms. As a percentage of total core federal filings, the number of core filings against non-U.S. firms remained similar to that in 2022, around 18%.
Measures of Investor Losses: The report reflects two different measures of investor losses represented in the securities class action lawsuits filed in the year’s first six months. 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 MDL that the first half filings represent increased sharply to a record high of $2,245 billion, more than double the 2022 second half total of $892 billion and more than four times the 1997-2022 semiannual average ($548 billion).
THe DDL reflected in the first half filings increase to $170 billion, compared to $117 billion in second half of 2022, but well below the record high of $505 billion in the first half of 2022.