Securities Class Actions Up By Nearly Half in 2017, Reports Find

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By Jennifer Bennett

Federal securities class action filings rose by roughly 50 percent to more than 400 in 2017, due in part to a surge in investor suits challenging mergers, two new reports say.

The reports released this week by NERA Economic Consulting and separately by Stanford Law School and Cornerstone Research use different methodologies and came up with somewhat different tallies. Filings increased to 412 from 271, according to Stanford Law School and Cornerstone Research’s Jan. 30 report, which filters out multiple filings arising from the same transaction, or to 432 from 300, according to NERA Economic Consulting’s Jan. 29 report.

“This increase reflected growth not seen in almost two decades and drove the average filing rate to more than one per day,” Dr. David Tabak, NERA Managing Director, said in a statement.

Merger Objection Increase

Merger objection suits helped drive the increase as they shifted from state to federal courts, Kevin LaCroix, executive vice president at insurance broker RT ProExec and author of the D&O Diary blog, told Bloomberg Law.

These cases accounted for just under 200—almost 50 percent—of 2017 filings, according to both reports, compared to 30 percent of securities class action filings in 2016.

Federal court securities filings are above historical levels even without the merger objection lawsuits, said LaCroix, who released his own analysis of securities class action trends earlier this month.

Fewer Companies, More Lawsuits

Approximately 8 percent of publicly traded companies faced a securities class action in 2017, while only about 4 percent faced similar litigation in 2014, the reports said. Cornerstone Research and NERA both studied companies listed on the NYSE or NASDAQ, but in the past, NERA also included companies listed on AMEX.

“Because the number of public companies has declined dramatically over the last 20 years, the rise in the number of lawsuits means that the chance of a U.S.-listed company becoming involved in a securities suit has increased very significantly,” LaCroix said.

The increase in filings has gone along with an increase in dismissals, according to the NERA report. Two hundred and five securities class actions—made up of cases from 2017 and prior years—were dismissed in 2017. Over 40 percent of those dismissals came within a year of the suit’s filing, the NERA report said.

“The implication is that the plaintiffs’ lawyers are filing more lawsuits of lower quality,” LaCroix said.

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

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