Risk & Compliance

Securities Fraud Class Actions Spike Again

Cases filed since the beginning of 2017 represent more than 20% of all such cases filed since 1997.
David McCannAugust 1, 2019
Securities Fraud Class Actions Spike Again

Filing federal class-action lawsuits alleging securities fraud is a big-time sport in the United States, and getting bigger all the time.

The first half of 2019 brought 198 new cases. Over the past two and a half years there have been more than 1,000 of them, representing over 20% of all such filings since 1997, according to Cornerstone Research.

There was $180 billion worth of disclosure dollar loss (DDL) filings, a record for a semi-annual period and three times larger than the historical average. (DDL is the dollar-value change in the market capitalization of a defendant company from the trading day immediately preceding the end of the class period to the trading day immediately following the end of the class period.)

A higher-than-average number of DDL filings contributed to the large DDL total, Cornerstone said. Nine percent of such filings were at least $3 billion, accounting for 76% of the total DDL. Those percentages compare to historical averages of 6% and 63%, respectively.

However, the median DDL filing fell dramatically from $476 million to $211 million, “indicating an influx of filings with smaller DDL values masked by a handful of very large DDL values,” Cornerstone said.

Maximum dollar loss (MDL) filings rose by 17% from the prior semi-annual period, to $781 billion, well more than double the historical average of $317 billion. (MDL is the dollar value change in the defendant firm’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period.)

The big numbers are “largely attributable to a delayed effect of market volatility in the last quarter of 2018 and to an uptick in filings in the consumer non-cyclical sector — which includes biotechnology, pharmaceutical, and health care companies — and against internet and high-tech firms,” said Cornerstone vice president Sasha Aganin.

Another factor was a massive, 63% increase compared to the second half of 2018 in filings against European companies.

Plaintiffs also continued a recent trend of shifting securities fraud claims against initial public offerings from federal courts to state courts. “Data show that state courts dismiss fewer of these claims than to federal courts,” said Stanford Law School professor Joseph Grundfest, a former SEC commissioner.