Over the last several years, there has been a massive rise in securities class action suits with no signs of things slowing down. From the information cited in Cornerstone Research’s Securities Class Action Filings 2019 Year in Review and NERA Consulting’s Report “Recent Trends in Securities Class Action Litigation: 2019 Full-Year Review,” Financial Recovery Technologies (FRT) summarizes the key takeaways and notable trends related to (non-IPO) securities class action litigation in 2019.

> Trends in U.S. Filings

Third consecutive year with more than 400 cases filed

• Before 2017, the number of federal class action filings remained below 300 each year. Since 2017, that number has reached 429, 433, and 433.
• Over time, the number of publicly traded companies listed on the NYSE and Nasdaq has declined by about 38 percent. This means the chances that a listed company will face a securities class action case has more than doubled since 1996, with nearly 8 percent of companies subject to such a lawsuit in 2019.

Health technology and services sector recorded most new cases filed

• Excluding merger-objection cases, most new cases were filed against the health technology and services sector, with 21 percent of the 2019 cases.
• The proportion of annual filings against firms in this sector has declined, though, with filings against electronic technology and technology services nearly matching those filed against health technology and services firms, at 20 percent.

Most common allegations related to missed earnings guidance

• In 2019, the relative mix of allegations shifted. Thirty-two percent of complaints filed in 2019 included allegations of company-specific missed earnings guidance. This is significantly greater than the average 20 percent alleging missed earnings in the previous four years.
• Allegations related to accounting issues and regulatory matters remained common, with 29 percent and 26 percent of class action claims, respectively.

Cyber security breaches and cannabis industry filings

• A notable trend to watch is the increase in event-driven filings related to cyber security breaches.
• Another emerging trend is filings against cannabis industry companies. Six complaints were filed in the last half of 2019.

Cases settled vs. dismissed

• Though resolutions declined by 9 percent from the previous year, the number of resolutions in 2019, 311 securities class action cases, remained much higher than the average 215 cases that were resolved annually during 2010-2016.
• Dismissals again accounted for most of the case resolutions, with more than two-thirds dismissed.
• Eighty cases settled.

Time from first complaint to resolution

• Based on complaints filed between 2001 and 2015, about 80 percent of cases resolve within four years.
• Fourteen percent of the cases resolved within a year, 28 percent resolved between one and two years, and another 23 percent resolved between two and three years after first complaint.

> Trends in Non-U.S. Federal Filings

Number of filings against non-U.S. issuers trending upward

• The number of federal filings against companies with headquarters based outside of the United States continued to trend upwards, reaching a record number of 57.
• As a percentage of total filings, complaints against issuers outside of the United States generally trends upward. At 23.4 percent of all federal filings, the filings against non-U.S. issuers was the third-highest on record in 2019.

Number of filings by location

• Filings against companies headquartered in Europe reached a record high of 23.
• Filings against Canadian companies, with nine in 2019, reached the highest number since 1998.

> Trends in Settlement Values

Average settlement value declining

• Historically, the annual average settlement value for securities class action cases varies widely. Adjusting for inflation and excluding merger-objection cases, the average settlement value over the past 10 years has ranged from $26 million to $128 million.
• For non-merger-objection cases resolved in 2019, the average settlement value was $30 million. This is the second lowest average for the decade and more than 50 percent lower than the average value in 2018.
• The lower average settlement value can mostly be attributed to the lack of any mega-settlements in 2019. If case settlements above $1 billion are removed from the calculation, then the 2018 average also would be $30 million.

Median settlement value increasing

• After adjusting for inflation, the median settlement value of $12.8 million in 2019 was the highest since 2012.
• More cases have been settling for higher values, with the median settlement value in 2018 and 2019 more than 25 percent higher than the prior three years’ median values.

Settlement values increasing

• More than 40 percent of cases settled in 2018 and 2019 had settlement values between $10 million and $49.9 million. This represents a more than 50 percent increase for values in this range when compared with the previous two-year period.
• The proportion of securities class action cases that settled for less than $10 million declined from 58 to 41 percent between 2015 and 2019.

Top 10 settlements in value

• In 2019, two cases settled for $250 million or more.
• The top settlement was for $398.6 million against Cobalt International Energy, which involved allegations including violations of the Foreign Corrupt Practices Act.
• Four cases settled for between $108 million and $160 million.
• Four cases settled for between $50 million and $82.5 million.

> Trends in Plaintiffs’ Attorneys’ Fees and Expenses

Decline in aggregate attorneys’ fees

• In 2019, aggregate plaintiffs’ attorneys’ fees and expenses were $612 million. This is nearly half of the 2018 amount.
• In 2019, there was no mega-settlement. This led to a lower total settlement value for the year, and since attorneys’ fees are related to the settlement amount, lower total settlements leads to lower aggregate attorneys’ fees and expenses.
• Aggregate payments to plaintiffs’ attorneys for cases that settled between $10 million and $100 million was significantly lower in 2019 than in 2018

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