Securities Class Actions Up 9% in 2013, But Below Average

February 10, 2014

Plaintiffs filed 166 new federal securities class actions in 2013, a 9 percent increase over 2012. However, the 2013 total is 13 percent below the average from 1997 to 2012, despite a second-half surge.

The slump in filings may be associated with fewer listed companies for plaintiffs to sue, according to “Securities Class Action Filings – 2013 Year in Review,” a report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

The report points to the decline in the number of companies listed on the NYSE and NASDAQ as one explanation for filings below the historical average. The number of companies on these exchanges has decreased 46 percent since 1998.

The report also analyzes the recent increase in initial public offerings (IPOs) on major U.S. exchanges. The 150 IPOs in 2013 represent the highest number in the past five years. There has been an increase in larger companies undertaking IPOs in recent years, particularly in 2013.

“While the almost 50 percent decrease in listed companies has played a part in the recent trend of low numbers of class action filings, the sharp increase in IPOs in 2013 may provide fuel for a new wave of filings in the next few years,” said John Gould, senior vice president of Cornerstone Research.

A new analysis of class certification rulings for filings between 2002 and 2010 reveals that class certification was denied in less than 2 percent of cases due to a decision based on the merits of the motion. During the same period, increasing proportions of cases were dismissed before class certification motions were filed.

The report also examines factors that could influence future securities class action filings, specifically Halliburton v. Erica P. John Fund, a closely watched U.S. Supreme Court case scheduled for oral arguments in March.

“If Halliburton prevails in its case before the U.S. Supreme Court, then the entire market for class action securities fraud litigation is likely to be disrupted because it will become impossible to certify a large number of Section 10(b) class actions,” said Joseph Grundfest, Stanford Law School Securities Class Action Clearinghouse director. “Large investors with substantial losses in the biggest of the frauds will likely be able to litigate their claims on an individual basis, but small investors will then have to look to Congress to fashion an alternative remedy.”