Securities Class Action Filings: 2016 Year in Review
NUMBER AND SIZE OF FILINGS
By several measures, securities class action filing activity surpassed all previous years, including 2008.
- Plaintiffs filed a record 270 new federal class action securities cases (filings) in 2016. This was 44 percent greater than both 2015 filings and the historical average of 188 filings observed between 1997 and 2015.
- Disclosure Dollar Loss (DDL) edged up to $107 billion in 2016, 2 percent above 2015 DDL, but 11 percent below the historical average of $120 billion.
- For the first time since the 2008 financial crisis, Maximum Dollar Loss (MDL) exceeded the historical average. MDL was $823 billion in 2016, 38 percent above the historical average, and more than double 2015 MDL.
- In 2016, five mega filings made up 31 percent of DDL and 22 mega filings made up 66 percent of MDL. While the number of mega DDL filings was in line with the historical average, mega DDL as a percentage of total DDL was well below the historical average of 54 percent. The number of mega MDL filings was well above the historical average, but mega MDL as a percentage of total MDL was below the historical average of 71 percent. Filings with a DDL of at least $5 billion or an MDL of at least $10 billion are considered mega filings.
OTHER MEASURES OF LITIGATION INTENSITY
- A record 3.9 percent of U.S. exchange-listed companies were subject to “traditional” class action filings in 2016. This was above the historical average of 2.8 percent.
- More cases were filed against S&P 500 firms in 2016 than in any of the previous seven years, with a large spike for companies in the Health Care sector.
A substantial increase in federal M&A filings drove the overall jump in filing activity.
- Federal filings of class actions involving merger and acquisition (M&A) transactions increased to 80, more than four times greater than in 2015.
- The 2016 median filing lag of seven days was the shortest on record. Between 1997 and 2015, the average median filing lag was 23 days.
- The number of filings against foreign issuers increased from 2015 levels despite very few filings against Chinese issuers, previously the most frequently targeted foreign firms.
- Filings targeting European issuers increased to their highest level since case tracking began in 1997.
- Filings against companies in the Financial sector doubled to 34 in 2016 after dropping to 17 in 2015.
- The Consumer Non-Cyclical sector again had the most filings with 109, more than double the historical average of 47 filings. The increase was driven in part by filings against pharmaceutical, biotechnology, and healthcare companies.
- There were 86 filings in the Ninth Circuit and 64 filings in the Second Circuit. Filings in these circuits made up 56 percent of all filings in 2016.
M&A FILINGS BY CIRCUIT
The wave of federal M&A filings in 2016 may be the result of the venue shifting effect of Trulia.
- Federal M&A objection filings (M&A filings) more than quadrupled to 80 filings in 2016 and were most common in the Ninth and Third Circuits, with 24 and 11 filings, respectively.
- Federal M&A filings quintupled in the Third and Ninth Circuits in 2016 compared to 2015. The Third and Ninth Circuits accounted for 44 percent of all M&A filings in 2016.
- The Delaware Court of Chancery’s rejection of a disclosure-only settlement in Trulia in January 2016 may have resulted in shifting of merger objection lawsuits from state to federal venues.
STATUS OF M&A FILINGS
M&A filings had a higher dismissal rate than other filings from 2009 to 2015. During this period, 78 percent of these M&A filings were dismissed, compared to 47 percent of other federal filings.
PHARMACEUTICAL, BIOTECHNOLOGY, AND HEALTHCARE SUBSECTORS
The number of filings in the Pharmaceutical, Biotechnology, and Healthcare subsectors increased for the fifth consecutive year and was more than double the 1997–2015 historical average. These filings continue to make up an increasingly large percentage of MDL.
CALIFORNIA STATE COURT SECTION 11 CASES
California state Section 11 filings have become more frequent in the last two years.
Class actions with Section 11 claims have been increasingly filed in California state courts in the last few years (California state Section 11 filings). Some of these filings have parallel actions in federal courts, but most do not. These California state Section 11 filings do not include claims related to Rule 10b-5, but may include Section 12 or Section 15 claims.
- Between 2010 and 2016, plaintiffs filed 48 Section 11 cases in California state courts.
- In 2016, California state Section 11 filings were greater than in any of the previous six years. These filings were primarily concentrated in the San Francisco Bay Area.
- The MDL of California state Section 11 filings was higher in 2015 and 2016 than in any previous years.
- A larger percentage of California state Section 11 filings are ongoing relative to comparable federal filings (i.e., filings with Section 11 claims, but no Rule 10b-5 claims), primarily due to a lower dismissal rate for state filings.
Read the report here: Securities Class Action Filings 2016 Year in Review