The filing of securities class actions is traditionally a key metric watched by firms and investors. This week Cornerstone Research published their mid-year report (here). Key metrics reported focused on: 1) the number of securities class actions filed; 2) the percentage of exchange listed firms named in those cases; 3) industries were suits were filed; and 4) the initiation of actions against non-U.S. issuers.
The filing of securities class actions is traditionally a key metric watched by firms and investors. This week Cornerstone Research published
their mid-year report (here). Key metrics reported focused on: 1) the number of securities class actions filed; 2) the percentage of exchange listed firms named in those cases; 3) industries were suits were filed; and 4) the initiation of actions against non-U.S. issuers.
First, the total number of filings for the first half of the year declined to 182, the lowest since the second half of 2016 when 160 new securities class actions were filed. The cases filed during the first half of the year were split between those the Report calls “core” – essentially basic securities class actions – and actions related to M&A activity. There were 117 actions in the former category and 65 in the latter for the first half of the year. The 117 core class actions is the lowers number since the second half of 2016 as is the 65 M&A related cases.
Second, the decline in the number of filings is paralleled by the percentage of exchange listed firms which may become subject to an action. The data for the first half of the year shows that exchange listed firms have a 7% chance of being named in a suit. This is the first decline since 2012. If the cases are divided between core and M&A, each segment reflected a decline. Stated differently, the decline is not a function of just one type of case.
Third, the industry heat map for firms in the S&P 500 reflects a change in the filing patterns of core filings. Over the last 20 years the industries drawing the largest percentage of core filings were: 1) Health case – 9.1%; 2) finance/real estate – 7.7%; and 3) communication -telecommunications – 6.5%. In contrast, during the first half of 2020 (annualized) the mix changed: a) Health care – 10%; b) consumer discretionary – 6.2%; and c) consumer staples – 6.1%.
While health care continued to be at the top of the list in the first half of the year, the shift in the next two categories to consumer discretionary and staples means that in effect 12.3% of the suits focused on consumers, eclipsing the health care category. The Report does not comment on the impact of the COVID pandemic and the lock down of consumers in many areas at home. Those events may have impacted matters in the consumer space and thus the filings, a point which cannot be fully assessed at this point.
Finally, the filings involving non-U.S. issuers suggest a different trend. Viewed as a percentage of total core filings, securities class actions filed against non-U.S. issuers increased by 31.5%. That is the highest rate on record. About 20% of those cases contained allegations relating to cryptocurrency. In contrast, annualized core federal filings were down 9%.
Overall the key statistics presented in the Report reflect a decline in basic or core securities class actions and cases tied to M&A activity. Analysis of the trends from those filings also reflects a possible shift to a focus on consumer related areas and a marked increase in actions against non-U.S. issuers.
Video Program: “Securities Fraud, the Pandemic and Compliance: Protect Your Organization,” August 6, 2020, 12:00 p.m. ET. Chair, Tom Gorman. Free registration, materials & CLE (here)