Filings Related to Mergers and Acquisitions and Chinese Reverse Mergers Decline Substantially; No New Credit Crisis-Related Class Actions Filed
BOSTON - Federal securities fraud class action filing activity decreased sharply in 2012, according to Securities Class Action Filings-2012 Year in Review, a semiannual report prepared by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. Only 152 federal securities class actions were filed in 2012 compared with 188 in 2011 - the second-lowest number of annual filings in 16 years.
The decrease in total filings was largely due to declines in federal merger and acquisition (M&A) and Chinese reverse merger (CRM) filings. Together, they accounted for only 23 filings in 2012 compared with 74 in 2011. These waves of cases are most likely over, and future filings of these types are likely to remain at very low levels. In addition, 2012 was the first year in which there were no new filings related to the credit crisis.
Overall, filings in the financial sector continued to decrease, with 15 filings in 2012 compared with 25 in 2011 and 43 in 2010. Filing activity continued to be most prevalent against companies in the Consumer Non-Cyclical sector. Of the 49 filings in this sector, 33 were against healthcare, biotechnology, and pharmaceutical companies.
Continuing a pattern observed in 2011, fewer filings targeted very large companies in 2012. An analysis of S&P 500 companies named as defendants in securities class actions shows that only one out of every 29 was the subject of a new filing in 2012, making 2011 and 2012 the least litigious for S&P 500 companies in the past 13 years.
Data in the recently published SEC report on the Dodd-Frank whistleblower program provide potentially valuable insights for possible future securities litigation trends. From October 1, 2011, through September 30, 2012, the SEC received 3,001 whistleblower tips. The most common tip categories were Corporate Disclosure and Financials, Offering Fraud, and Market Manipulation. Together, these categories accounted for nearly 49 percent of all tips received.
Dr. John Gould, Senior Vice President of Cornerstone Research:
What stood out in 2012 was the absence of a filing trend that influenced the total number of new cases. In the past there have been observable filing types, such as IPO cases, options backdating, mergers and acquisitions, or most recently, Chinese reverse mergers. But 2012 was not dominated by any such trend. Interestingly, in a year characterized by a dramatic drop in securities class action filings, the number of traditional Rule 10b-5 "stock drop" filings actually increased in 2012.
Professor Joseph Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research:
Is there a shoe waiting to drop? The SEC claims that the Dodd-Frank bounty program has helped it build a large inventory of high-quality leads as to fraud at publicly traded corporations. But will the Commission be able to transform these leads into quality enforcement actions? And, will private-party plaintiffs be successful in prosecuting "piggyback" claims that copy the Commission's complaints? The current quiet patch in private securities fraud litigation could certainly be unsettled if the Dodd-Frank bounty program generates a new wave of private claims.
Number and Type of Filings
Classification of Complaints
Disclosure Dollar Loss IndexTM and Maximum Dollar Loss IndexTM
Dr. Gould and Professor Grundfest are available to speak with the media about Securities Class Action Filings-2012 Year in Review. The full text of the report is available from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. An infographic that highlights several main findings from the report is available here.
Cornerstone Research and its affiliated testifying experts provide economic and financial analysis of complex issues arising in commercial litigation and regulatory proceedings. Cornerstone Research cosponsors the Stanford Law School Securities Class Action Clearinghouse. Information about Cornerstone Research is available at www.cornerstone.com.
The Securities Class Action Clearinghouse is an authoritative source of data and analysis on the financial and economic characteristics of federal securities fraud class action litigation.
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