Industry reviews like the one conducted by Cornerstone Research have proven that the 152 securities class action cases that were filed in 2012 failed by 20% to reach the annual average from 1997-2012. Should there be concern that this decline will continue, or was last year an anomaly, and class actions will likely bump up in the near future to their historical levels? The answer according to most experts is that the securities class action industry is cyclical, oftentimes reflecting the economic and regulatory atmosphere and trends from several years ago, as well as the focus of plaintiffs’ attorneys. The decrease in 2012 filings resulted primarily from a significant decline in merger & acquisition cases, actions taken against Chinese-based organizations, and the waning of credit-crisis related lawsuits.
An article by Lane Powell emphasizes that securities class action litigation will not be disappearing any time soon. The reason being that plaintiffs’ law firms have specialized in class actions, utilizing a great deal of resources building relationships with institutional investors and systematizing the process of choosing which companies to go after and which cases to pursue. As long as companies continue to have stock declines and publish misinformation, law firms will continue to devote resources to filing litigation.
The securities class action world exists in a constantly fluctuating environment. Regulations are imposed and updated, new economic trends emerge, and plaintiffs’ attorneys evolve along with the changes. When the Private Securities Litigation Reform Act of 1995 was passed containing provisions expected to protect companies from class action litigation, lawyers developed new tactics, including filing at the state level and courting the largest institutional investors to serve as lead plaintiffs.
Examples of plaintiff attorneys adjusting to the changing economy include the boom in cases resulting from the credit crisis and IPO laddering cases, which included more than 300 issuers and underwriters. Of course, law firms also continue to file many “usual” cases when large stock declines occur. Some years see more filings and some years see less, which harks back to the point the securities class actions are often cyclical in nature.
While the number of cases that were filed and settled was lower in 2012, instances of dismissed cases were much lower than average. The decrease in settlements indicates a longer case resolution time. With fewer cases being dismissed and longer periods before settlements, it seems that 2013 could see an increase in settlements as compared to 2012. It is important to be prepared to respond to the class action environment, regardless of the current trends.