The State of Securities Class Actions: 2013 Review
In 2013, securities class actions grew in some ways, while shrinking in others. NERA Economic Consulting’s 2013 Year-in-Review report indicates that large settlements tended to get even larger in 2013, while small settlements got even smaller. Here’s a look at data that reveals how 2013 shook out in the world of securities class actions.
Filings for class actions, as a whole, increased slightly in 2013. But there’s been a particular focus on Rule 10b-5 violations relating to intentional fraud and insider trading, an area that showed a marked increase in filings in the 5th Circuit – doubling, to be specific. Filings in the 9th Circuit, which had dipped to a low point in 2012, returned to pre-2012 levels.
The 2012 mark seems to mark an important shift related to Rule 10b-5. Filings that included both Rule 10b-5 violation allegations and insider sales allegations were sharply decreasing during the period between 2005 and 2011, but began to rise in 2012 and continued this upward trend in 2013, included in 25 percent of all 10b-5 class actions this past year.
Overall, 2013 resulted in 234 class actions filed in federal court. That’s the highest number of filings since 2008, although it’s not the highest in recent history. Several years, including the three-year period from 2002-2004, had more filings than 2013.
What’s interesting to note is that the number of publicly listed companies in the U.S. is on a decline. In fact, there’s been a steady downward trend in the number of public companies since 1996, with a decrease of 43 percent by 2013. As the number of public companies is shrinking while class action filings are on the rise, the end result is that public companies are facing an increased likelihood of becoming the target of a securities class action – 83 percent more likely than in the five-year period following the passage of the PSLRA.
The credit crisis continued its lessened impact in 2013, a carryover from 2012, the first year in which fillings related to the credit crisis had declined since the peak in 2008. Additionally, there were just four Ponzi scheme-related class action filings in 2013; that number was at its peak in 2009, when there were 30 related filings.
Other financial-related matters are at the forefront of class action filings for 2013. Filings related to misleading earnings guidance, for example, represented 41 percent of total complaints. More than a quarter of complaints included accounting allegations, a reduction from the 44 percent we saw in 2009. NERA speculates that this reduction is likely related to the reduction in the number of cases with accounting codefendants.
It seems as though many trends that were strong during the 2005-2011 period started to take a turn in 2012. As such, we expect things to continue moving in their respective directions in 2014. With the help of a third-party securities class actions provider, you can be on top of relevant filings and make the smartest decisions when it comes to your investments.