A total of 312 federal securities class actions were filed during the first three quarters of 2018, a near-record rate that points to a second consecutive year with more than 400 filings. Despite making up about half of filings, new merger-objection litigation has fallen about 4% versus the first three quarters of 2017, implying that the rapid growth following the 2016 Trulia decision may have ended. Over the first three quarters of 2018, there were 151 filings of standard cases—those that allege violations of Rule 10b-5, Section 11, and/or Section 12—which is consistent with the rate seen over the last few years.
Despite a rate of standard filings consistent with 2017, aggregate NERA-Defined Investor Losses, a measure of total case size, exceeded $650 billion year-to-date, double that of all of 2017. Nearly all growth was due to cases alleging accounting violations, including $290 billion tied to litigation against General Electric (GE). Even excluding GE, cases alleging accounting issues drove the vast majority of growth in total Investor Losses versus 2017, as the number of accounting cases jumped by nearly a fifth and average Investor Losses per case doubled. An inordinate share of such filings occurred in the aftermath of the market turbulence earlier in the year. Accounting cases partially supplanted filings alleging regulatory violations which, while substantial in size, fell by nearly 40% on an annual basis.
Once again, standard filings against firms in the healthcare sector dominated dockets. Filings against technology firms jumped more than 70% from last year, including a doubling of cases alleging accounting issues to levels not seen in at least a decade.
The number of dismissed securities class actions is likely to exceed settlements once again this year. While more than four merger-objection cases were dismissed (mostly voluntarily) for each settlement, a large majority of resolved standard cases were also dismissed. The heightened number of voluntarily dismissed standard cases, especially soon after filing, has moderated considerably this year compared with 2017.
2018 settlement news was dominated by the $3 billion settlement of Petróleo Brasileiro S.A.—Petrobras, the fifth-highest settlement ever, which drove the average settlement to $88 million. Excluding Petrobras, the average settlement increased marginally to $26 million, but remained near record lows. On the other hand, the median case settled for $13 million, the highest level in at least a decade. The large median settlement is partially due to the median case settling for a high fraction of Investor Losses, as the median ratio of settlement to Investor Losses reached 2.7%, the highest ratio since 2005. In coming years, heightened median settlement values may persist, as numerous cases filed since 2016 with high Investor Losses are likely to settle.
