Recent Trends in Securities Class Action Litigation: 2011 Mid-Year Review

Tue Jul 26 16:24:38 EDT 2011
By Dr. Jordan Milev, Robert Patton, and Svetlana Starykh

Federal securities class action lawsuits in the first half of 2011 were filed at the second highest semi-annual rate in the last eight years, according to this edition of NERA's biannual study. The study draws from more than 15 years of NERA research on case filings and settlements in securities class actions, and includes data on filings, dismissals, and settlements through 30 June 2011.
 
The latest edition shows that there were 130 filings of securities class actions from January to June of this year. If this pace of filings is maintained, there will be 260 fillings by year-end in 2011 -- the highest level since 2002 and the fourth highest in the 16 years since the passage of the Private Securities Litigation Reform Act (PSLRA). While filings have been brisk, average settlement size in the first half of 2011 has fallen sharply to $23 million, down from $108 million in 2010. The median settlement also fell substantially, to $6.3 million from an all-time high in 2010 of $11 million.
 
Over a third of federal securities class action lawsuits filed in the first half of 2011 were against foreign-domiciled issuers, a historical high and more than double the prior peak in 2004. In prior editions of NERA's Trends report, the authors observed that foreign companies listed in the US are less likely to be sued than domestic issuers. Recently, however, there has been a sharp reversal of this pattern. Results for the first half of 2011 show that US-listed foreign-domiciled companies are now twice as likely to be sued as their US-domiciled counterparts. Driving this trend are the 27 suits filed against companies domiciled in China -- making up 60 percent of all suits against foreign-domiciled issuers. 
 
As in the second half of 2010, a large number of suits in the first half of 2011 challenged the pricing of a merger or acquisition; however, the 37 such suits filed in the first half of this year were fewer than the 50 M&A pricing objection suits filed in the second half of last year. The rising share of cases with a breach of fiduciary duty allegation is largely a by-product of the growth in cases challenging the pricing of a merger or acquisition. In both 2010 and the first half of 2011, such cases account for almost 30 percent of filings.
 
In addition, the downward trend of credit crisis securities class action litigation observed in 2010 by NERA Trends authors continued in the first half of 2011, with only eight cases tied to credit crisis litigation observed. Ponzi scheme filings have also declined from nine in 2010 to two so far in 2011. Of the 245 credit crisis-related federal securities class actions filed in the past few years, as of June 2011, 79 have been dismissed and 23 have settled.