Number of U.S. Securities Class Action Filings rises, fuelled by M&A-related challenges
Claimants in the United States filed 119 new federal securities class action cases in the first half of 2016. Filings against European-headquartered firms increased by 80% over the last half of 2015, according to Securities Class Action Filings – 2016 Midyear Assessment, a new report released by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.
The total represents an increase of 17 cases from the second half of 2015, and 32 more than the first half of 2015. The 119 filings were 27% higher than the biannual average of 94 filings observed between 1997 and 2015.
Federal filings of class actions involving mergers and acquisitions increased to 24 in the first half of 2016 – 167% above the second half of 2015, and significantly higher than the biannual range of five to nine filings from 2012 to 2015.
Dr John Gould, a senior vice president of Cornerstone Research, said:
“At the current pace, M&A-related filings in federal courts will double the annual numbers we have observed in the last four years. The January 2016 Delaware Court of Chancery decision in Trulia, which makes disclosure-only settlements more difficult to obtain, may have increased the likelihood that claimants will again seek federal jurisdiction for M&A-related class actions. We are releasing a report next week that looks in greater detail at M&A-related shareholder actions in both federal and state venues.
Professor Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse and former SEC Commissioner, said:
“The data also show an interesting shift in litigation involving alleged untrue statements in the registration of a security, or Section 11 of the U.S. Securities Act of 1933. Claimants are shifting some of these matters from federal to state court, an issue that could soon wind up before the U.S. Supreme Court. Claimants have obviously calculated that they are likely to achieve more claimant-friendly outcomes in state court than in federal court, and are using a range of jurisdictional manoeuvres to try to steer an increasing number of cases away from the federal forum. One defendant who has been shut out of federal court has petitioned the U.S. Supreme Court for a hearing, and if the Court grants the petition its ruling could have a major effect on the future evolution of Section 11 litigation.”
In the first half of 2016, filings against S&P 500 companies were more frequent than the historical average. If the current pace continues, one in 16 companies (6%) would be the target of a lawsuit by year end, the highest annual rate since 2008.
The Consumer Non-Cyclical sector again had the most filings with 43. The sector predominantly comprises biotechnology, pharmaceutical, and healthcare companies. There were 32 filings against companies in these subsectors.