New federal securities class action filings in the first six months of 2019 indicate that annual filings are on track to be similar to the number of new cases filed in each of the prior two years. While we observed a relative surge in new cases in the first quarter of the year, this higher level of new cases did not persist in the second quarter. Filing activity in the first half of 2019 indicates a continuation of the shift in the types of cases observed in 2018—an increasing number of the standard (Rule 10b-5, Section 11, or Section 12) cases and a decreasing number of merger objections. If the filing composition and levels observed in the first half of 2019 are an indication of the pattern for the rest of the year, we may find a 15% increase in Rule 10b-5, Section 11, and Section 12 cases compared to the approximate 1% growth in this category of filings in 2018. On the other hand, merger-objection cases filed in 2019 are on pace to be more than 16% lower than similar cases filed in the prior year.
In 2018, 1 in 12 publicly traded companies were subject to securities class action. Based on the H1 2019 filing rate, publicly traded companies may have a similar litigation risk. However, the risk of merger-objection litigation is specific to firms planning or engaged in M&A activity. During the first six months of 2019, there were 3,699 merger announcements and only 83 merger-objection cases filed. Based on this recent data, we find that only 1 in 45 companies planning a merger are being sued.
The split of non-merger-objection class actions filed in H1 of 2019 across the economic sectors is fairly consistent with the distribution observed in 2018, with no indication of any shifts or increases in particular sectors. As in 2018, the Health Technology and Services and the Electronic Technology and Technology Services economic sectors accounted for over 40% of filings.
The aggregate NERA-defined investor losses associated with 2019 filings thus far suggest that the new filings for the full year may be larger than the cases in 2017 but lower than in 2018, even excluding the outlier 2018 General Electric case. For the full year of 2018, there were nearly three times as many cases with NERA-defined investor losses in excess of $10 billion compared to the first half of 2019.
If resolution activity between January and June reflects the pattern for the rest of 2019, resolutions for the full year will be lower than the 2017 and 2018 levels but higher than in 2016. Despite the overall lower resolutions, the number of cases dismissed is on pace to be higher than the number of dismissals in 2017. Settlements, on the other hand, are on pace to reach approximately 100 for the full year—the lowest level of settlements observed in any one year since 2012.
During the first half of 2019, the average settlement declined to $33 million, more than 50% lower than the average in 2018 but higher than the average in 2017. However, this phenomenon is primarily driven by the fact that the Petrobras settlement for $3 billion was finalized in 2018 and heavily skewed the average for that year. If we limit to cases with settlements under $1 billion—and thus exclude the Petrobras settlement in 2018—we found a slight increase in the average settlement value in 2019 compared to the prior years. The median settlement value for cases was $12 million, which is in line with the median in 2018 but almost double the median value in 2017.
