Largely as a result of a slowdown in new filings during
the fourth quarter, 2012 securities class action lawsuit filings were below the
filing levels of recent years and below historical averages. Filing levels
remained elevated in the natural resources, life sciences and computer services
industries, and filings against non-U.S. companies, though off from 2011 record
levels, remained above historical levels.
There were 156 new securities class action lawsuit
filings during 2012. (Please see the comment below regarding my counting
methodology.) The 2012 filing count is down from the 188 securities suits filed
in 2011 and is well below the 1996-2011 annual average of 193.
The drop in 2012 filings is largely due to the decline in
filings during the fourth quarter. There were 45, 45 and 41 filings during the
first, second and third quarters, respectively. However, in the fourth quarter
there were only 25 new securities class action lawsuit filings. The 66 new
filings during the second half represented the lowest filing level for any
half-yearly period since the first half of 2007, when 69 new securities suits
were filed. (The lowest half-yearly filing period since 1996 was the second
half of 2006, when there were only 55 new securities class action lawsuit
filings. )
The 156 securities class action lawsuits filed during
2012 were filed in 45 different federal district courts, as well as two state
courts. (The '33 Act provides for concurrent state court jurisdiction for
liability actions under the Act.) Though securities suits were filed in many
different courts, there was a significant concentration of filings of new
securities suits in the Southern District of New York. There were 43 new
securities suits filed in the S.D.N.Y., representing 27.56% of all 2012
filings. Other courts with significant concentrations of new securities
suits included the Northern District of California and the Southern District of
California, each of which had 13 new filings during 2012; the District of
Massachusetts (8); the Northern District of Illinois (7); and the District of
New Jersey (6). Filings in the S.D.N.Y., N.D. Cal., and S.D. Cal. together
accounted for over 44% of all of the 2012 securities suit filings.
The 2012 securities suits were filed against companies in
a broad variety of industries. The 2012 securities suits involved companies in
81 different Standard Industrial Classification (SIC) Code categories. There
were, however, concentrations in certain industries. There were 27 new
securities suits against companies in the life sciences industries (represented
by companies in the 283
SIC Code group [Drugs] and the 384
SIC Code group [Surgical, Medical and Dental Instruments and Supplies]).These
27 new suits against life sciences companies represented 17.3% of all filing
during the year. Of particular note is that there were 15 new filings in the SIC
Code category 2834 (Pharmaceutical Preparations) alone, representing nearly
ten percent of all 2012 filings.
There were 16 new securities suits against companies in
the natural resources extractive industries, including mining (SIC Code
categories 1000, 1040, 1220, 1221) and oil
and gas production (SIC Code category 1311). And there were ten new
securities suits in SIC
Code group 737 (computer programming, data processing and other computer
services).
There were 26 new securities suits in 2012 against
non-U.S. companies, representing about 16.6% of all 2012 filings. Both the
absolute number and percentage of suits involving non-U.S. companies are
down from 2011, when there were 68 lawsuits against non-U.S. companies
represented 36.2% of all filings. Though the 2012 filings against non-U.S.
companies were down from 2011, the 2012 filings against foreign firms were at
levels comparable to 2010, when there were 27 suits against non-U.S. firms
representing 13.4% of all filings.
The record levels of filings against non-U.S. companies
during 2011 were largely due to the flood of suits last year against
U.S.-listed Chinese companies. There were 41 suits against Chinese-based
companies in 2011. Though the number of suits against Chinese companies
declined in 2012, there were still 14 suits filed against companies based in China,
plus another three suits against companies based in Hong Kong. (Note: I am
including in my count of suits against Chinese companies the
lawsuit filed on December 31, 2012 in the Southern District of New York
against Silvercorp Metals, which is
a company with its headquarters in Canada but all of its operations in China.)
Overall, the new suits filed against non-U.S. firms in 2012 involved companies
based in six different countries. Following China, the country with the highest
number of companies sued in U.S. securities class action lawsuits during 2012
was Canada, which had six companies hit with U.S. securities suits.
Discussion
My count of 156 securities suits during 2012 will be
different from other published tallies of the securities suit filings. My count
is slightly above that of the
Cornerstone Research because my tally, unlike the Cornerstone Research
tally, includes '33 Act suits filed in state court pursuant to the Act's
concurrent jurisdiction provisions. At the same time, however, my count is
below other tallies, such as, for example, the count
of NERA Economic Consulting, because I only count related lawsuit filings
once, regardless of the number of separate complaints filed. NERA and others
count separate complaints filed in separate jurisdictions separately unless or
until they are consolidated in the same judicial district. In addition, my
count includes only lawsuits that seek to recover damages for alleged
violations of the federal securities laws. As a result, my tally will be
lower than other class action lawsuit counts that include suits
against corporations and their directors and officers that do no allege
securities laws violations (for example, merger objection suits).
The decline in the number of new securities lawsuit
filings during the fourth quarter of 2012 is interesting, but at this point it
is hard to know what it might mean, and it is far too early to jump to any
conclusions about possible permanent shifts in the level of securities suit
filings. There have been periods before (for example, at the end of 2006 and
the beginning of 2007) when there were lulls in the level of securities suit
filings, but at least in the past, the lulls in filing levels have proven to be
temporary and relatively short-lived. Indeed, the lull at the end of 2006 and
the beginning of 2007 was followed by a surge of new securities filings during
following periods, as securities suits related to the subprime meltdown and
credit crisis came flooding in.
There seem to be a few possibilities to explain the drop
off in securities suit filings in the fourth quarter. The first is the absence
of any cyclical phenomenon driving filings. During the period 2007 to 2010, the
total number of filings was driven by lawsuits relating to the subprime
meltdown and the credit crisis. During 2011, there was a surge of filings
against U.S.-listed Chinese firms. By contrast, during 2012, the really wasn't
any particular cyclical development to drive filings.
Another factor in the decline in filings during the
fourth quarter may be that there were a significant number of lawsuits filed
during that time period as individual actions (particularly many of the
lawsuits recently filed alleging misrepresentations in connection with mortgage
securities offerings, as well as many of the suits filed in connection with the
mortgage put-back litigation). It may be that the individual suit filings
distracted from class action lawsuit efforts.
A third factor behind the decline in securities suit
filings may be that the plaintiffs' securities bar is seeking to diversify its
product line. As I have previously
noted, the increase in M&A litigation and the surge in say-on-say
litigation, among other things, may be understood in part as the efforts by at
least certain members of the plaintiffs bar to find new opportunities in lieu
of traditional securities litigation, which has both become more costly (owing
to electronic discovery) and more difficult (owing to case law developments) to
pursue. Of course, if some cyclical phenomenon presenting securities litigation
opportunities were to emerge, these diversifying plaintiffs' attorneys could
return to pursue securities litigation again.
A final possible explanation for the fourth quarter
decline is that the apparent slowdown is purely coincidental and that filing
levels will quickly return to normal levels. Just to reinforce this point,
though there were only five new filings in October and nine in November, there
were seven new securities lawsuit filings just in the final ten days of
December alone. It could be that the apparent lull during the fourth
quarter was nothing more than a reflection of the natural ebb and flow of
securities law suit filings that has characterized filings patterns since 1996.
Read
other items of interest from the world of directors & officers liability,
with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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