Securities class action lawsuit filings in the first half of 2020 were more than 15% below the number of filings in the first half of each of the last three years, according to a new report from NERA Economic Consulting. The report, entitled “Recent Trends in Securities Class Action Litigation: 2020 H1 Update” (here), projects a year-end total number of filings below the last three years’ totals, but still well above the totals for the years prior to 2017. NERA’s July 17, 2020 press release, which contains a detailed summary of the findings illustrated in the report, can be found here.  My analysis of the first half filings can be found here.


According to the report, there were 175 federal court securities class action lawsuit filings in the first half of 2020. (The numbers in the report do not reflect securities class action lawsuits filed in state court.) The first half filings project to a year-end total of 350 federal court securities suits, which would represent a 16.5% decrease compared to the 421 federal court suits that NERA reports were filed in 2019. Though the 2020 first half filings project to a year-end total that would be below the annual total in each year during the period 2017-2019, a total of 350 securities suit filings would be above the annual total in any year prior to 2017 (other than 2001, when the filing figures were inflated by the IPO laddering cases).


Of the first half 2020 filings, 70 were merger objection lawsuits, with the remainder consisting of standard cases under Rule10b-5, Section 11, and/or Section 12, and other types of securities class actions. While there were fewer of all types of cases in the first half of 2020, the mix of cases is “consistent with the mix observed in 2019, with fewer merger objections filed than standard cases.”


The mix of companies hit with non-merger objection lawsuits reflects a shift in the industries targeted in 2020 compared to recent years. The industrial sector that saw the most securities litigation activity in the first half of 2020 was the Electronic Technology and Technology Services Sector, which accounted for 23% of new filings. If this concentration were to continue for the remainder of the year, 2020 would be the first year during the period 2016-2020 in which Health Technology and Services sector was not the most frequently targeted sector.


According to the report, 11 of the first half 2020 securities suit filings were COVID-19 related securities suit filings. (My own tally of COVID-19 related securities suits filings during the year’s first half was 15; for a discussion of the difference in the counting, please see the discussion in my recent post about the coronavirus outbreak and D&O insurance and liability issues, here.) The report notes that about half of the COVID-19 related securities suit filings involved defendants in the Health Technology and Services and in the Electronic Technology and Technology Services sectors.


The aggregate NERA defined investor losses in cases alleging violations of Rule 10b-5, Section 11 and/or Section 12 for the first six months of 2020 was $244 million, an amount that projects to a year-end total of $488 million, slightly below the $498 year-end total in 2019.


The mix of case resolutions in the first half of 2020 reflects a higher proportion of dismissals and a lower proportion of settlements compared to the most recent years. There were 36 case settlements in the first six months of 2020, which projects to a year-end total of 72, which would represent a new record low annual number of settlements for the 2011-2020 period. There were 135 dismissals in the year’s first half, which annualizes to a year-end total of 270 case dismissals, which would be the highest number of any year during the period 2011-2020. The aggregate number of dismissals and settlements for the year’s first half projects to a year-end total of 342 total case resolutions, which would be slightly above the 312 case resolutions in 2019 but in line with the 338 case resolutions in 2017 and 339 case resolutions in 2018.


The average settlement amount of all securities suit settlements in the first half of 2020 (excluding merger objection suit settlements and zero dollar settlements) was $65 million, well above the 2019 average settlement amount in 2019 of $28 million. However, the average settlement amounts across a measurement period can be distorted by very large settlements; when the same data are reviewed but with settlements over $1 billion excluded, the average settlement amount for the first six months of 2020 is only $37 million, compared to a comparably derived average settlement amount in 2019 of $28 million. An annual average settlement of $37 million would represent the highest average settlement amount since 2016.


The median securities suit settlement amount (excluding merger objection suits, settlements over $1 billion, and zero dollar settlements) for the first six months of 2020 was $13.4 million, compared to $12 million in 2019. A year end median of $13.4 million would be the highest annual median settlement amount since 2016.

As part of a continuing series, I have been participating in sessions that the Professional Liability Underwriting Society (PLUS) has organized addressing the potential D&O liability and insurance issues arising out of the COVID-19 outbreak. I have been joined in these recorded sessions by my good friends Carl Metzger of the Goodwin Procter law firm and Rob Yellen of Willis Towers Watson. Because so much has happened since our last session, we recorded an updated session last week, the fourth in the series. The latest session is short (less than 30 minutes), informal, and conversational. In the recording, we discuss what we are currently seeing in the D&O insurance marketplace and what we are telling our clients about it, and also project ahead for what might may see as a result of the pandemic’s lengthening duration and continued spread. The recording can be found in a July 23, 2020 post on the PLUS Blog, here.

Matt Stock
Jason Zuckerman

In the following guest post, Matt Stock and Jason Zuckerman take a look at five ways that the SEC whistleblower program has affected both corporate compliance and the SEC’s enforcement efforts. Matt and Jason represent whistleblowers worldwide in whistleblower rewards and whistleblower retaliation claims. My thanks to Matt and Jason for allowing me to publish their article as a guest post on this site. I welcome guest post submissions from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Matt and Jason’s article. Continue Reading Guest Post: How the SEC Whistleblower Program Has Changed Corporate Compliance and SEC Enforcement

Paul Ferrillo

In the following guest post, Paul Ferrillo provides a primer for the purchase of cybersecurity insurance. Paul is a partner in the McDermott, Will & Emery law firm. My thanks to Paul for allowing me to publish his article as a guest post on this site. I welcome guest posts from responsible authors on topics of interest to this blog’s readers. Please contact me directly if you would like to submit a guest post. Here is Paul’s article. Continue Reading Guest Post: The Basics and Essentials of Purchasing Cybersecurity Insurance

In the latest in a series of lawsuits that recently have been filed against corporate directors based on board diversity issues, a Qualcomm shareholder has filed a derivative lawsuit against the company’s board, alleging that the company’s directors violated their duties to the company and shareholders by falling short of stated objectives on diversity and inclusion and by falling to include a single African-American either on the board or among the company’s senior officers. The lawsuit against Qualcomm follows similar lawsuit filed earlier this month against Oracle and Facebook. A copy of the July 17, 2020 complaint against the Qualcomm board can be found here. Continue Reading Qualcomm Hit with Board Racial Diversity Derivative Lawsuit

Early this spring, when I wrote the first installment in this series of updates about the impact of the coronavirus outbreak on the D&O liability and insurance arena, the general assumption was that the virus would spread for a couple of months during the spring and that by summertime things would be returning to normal. Very few people I know were predicting that when July actually did roll around that the number of confirmed cases, both nationally and globally, would be setting daily record highs. Even as recently as my most recent update last month, there were hopeful signs as the country re-opened for business. Unfortunately, the disease has proven to be more widely-distributed and the outbreak longer-lasting than earlier anticipated, and the expectations about the pandemic’s economic, social, and political impacts have also changed. All of these developments have implications for the pandemic’s impact on the D&O arena as well. In this latest update, I review the the pandemic’s D&O consequences and likely future impact. Continue Reading COVID-19 and D&O Insurance: July Update

In a recent post (here), I discussed the shareholder derivative suit filed against the board of directors of Oracle Corporation based on the alleged lack of racial diversity on the company’s board. Turns out that in addition to the lawsuit against Oracle’s board, the law firms that filed the Oracle lawsuit also have  filed a shareholder derivative lawsuit against Facebook’s board alleging that the directors had violated their fiduciary duties by their inaction on diversity and inclusion issues; their tolerance of racially discriminatory practices both in its workforce and on its platform; and their failure to take action on hate speech on its platform. Along with the Oracle lawsuit, the new lawsuit against Facebook provides another example of how the current heightened focus on diversity and inclusion issues can translate into D&O claims. A copy of the complaint in the Facebook action can be found here. Continue Reading Facebook Board Hit with Derivative Lawsuit on Board Diversity and Other Race-Related Issues

There were a record number of securities class action lawsuits filed against tech companies in 2019, according to a new report from Cornerstone Research. The report, entitled “Tech Company Securities Class Action Filings and Settlements: 2015-Q1 2020 Review and Analysis” (here) also shows that the number of securities suit filings against tech companies increased each year compared to the prior year during the four-year period from 2016-2019. Cornerstone Research’s July 15, 2020 press release about the new report can be found here. Continue Reading Cornerstone Research: Tech Companies Hit with Record Number of Securities Suit in 2019

After the Delaware Supreme Court’s March 2020 decision in Salzberg v. Sciabacucchi upholding the facial validity of corporate charter provisions designating federal court as the forum for Securities Act liability claims, several questions remained. Among the questions is whether others’ states courts will recognize and enforce federal forum provisions in Delaware corporations’ charters. This issue has been teed up for decision in a Section 11 lawsuit pending in San Mateo County court in California, in a case involving Dropbox. Dropbox has filed a motion urging the California state court to dismiss the action, in reliance on the federal forum provision in its corporate charter.


As discussed Alison Frankel’s July 13 post on her On the Case blog (here), a group of six ex-judges from Delaware has now entered an amicus brief on the issue in the case, urging the California court to recognize Delaware legal authority and enforce the federal forum provision in Dropbox’s charter. The Dropbox case, according to Frankel, is “shaping up as an early test of the application of the [Sciabacucchi decision] that forum selection clauses requiring shareholders to litigate Securities Act claims in federal court are facially valid because they concern the corporation’s internal affairs.” Continue Reading California Court to Address Enforceability of Delaware Corporation’s Federal Forum Provision

These days just about every public company merger transaction draws at least one merger objection lawsuit. These lawsuits formerly were filed in Delaware state court alleging violations of Delaware law, but since the 2016 Delaware Chancery Court decision in the Trulia case, in which the court expressed its distaste for this type of litigation, the lawsuits have been filed in federal court based on alleged violations of Section 14 of the Securities Exchange Act of 1934. These cases, through frequently filed, are rarely litigated. They typically are resolved by the defendants’ voluntary insertion of supplemental proxy disclosures and agreement to pay the plaintiff a “mootness” fee.


However, in a recent case a corporate defendant refused to update the proxy and succeeded in getting the case dismissed. As discussed in a recent law firm memo about the dismissal ruling, the “usual playbook” for these kinds of cases – making supplemental disclosures and paying a mootness fee – may not be the best approach, and the ruling itself may provide ammunition for companies that want to try an “alternative to the status quo.” Continue Reading Is There an Alternative to the Status Quo on Merger Objection Lawsuits?