The record pace of federal securities class action filings persisted during the first half of 2018, with 217 cases filed. Merger objections made up more than half of filings. Despite the dominance of such cases, merger-objection filing growth has slowed to a 7% annualized rate, down considerably from the triple-digit growth rates seen in the aftermath of the Trulia decision. There were 101 filings of standard cases—those that allege violations of Rule 10b-5, Section 11, and/or Section 12—a steady rate versus 2017, and one that approximates the long-term average of about 100 filings every six months.
The steady pace of standard filings over the first half of 2018 masks fundamental changes in filing characteristics. Aggregate NERA-defined Investor Losses, a measure of total case size, increased to $540 billion, up from $334 billion over all of 2017. Excluding the $290 billion tied to alleged accounting violations at General Electric (GE), annualized aggregate Investor Losses are up 50% versus last year. The accounting claims against GE may be a bellwether; accounting violations were resurgent in the first half of 2018, making up 37% of standard filings and notching the highest semi-annual case count since the first half of 2011. The percentage of cases alleging regulatory violations, many of which would be considered event-driven cases, accounted for about 17% of filings, down from 26% last year.
The percentage of standard filings against technology firms nearly doubled to more than 23%. This corresponded with 36% of cases being filed in the Ninth Circuit (up from 20% last year), which includes Silicon Valley.
Settlement metrics increased across the board for standard cases over the first half of 2018. The average settlement increased to $124 million, primarily due to the recently finalized $3 billion settlement against Petróleo Brasileiro S.A.—Petrobras, the fifth-largest settlement of all time. Excluding Petrobras, the average settlement increased 13% to $28 million. The median settlement increased substantially to a record $16 million, a dramatic turnaround driven by larger cases (as measured by NERA-defined Investor Losses) settling over the first half of the year. Moreover, the typical case settled for a higher fraction of Investor Losses, as the median ratio of settlement to Investor Losses reached 3.9%, the highest rate in at least a decade.
Only 46 cases settled over the first half of 2018, which, on an annualized basis, would be the fewest settlements on record. More than twice as many cases were dismissed as settled over the first half of the year. These trends cannot be attributed solely to resolutions of merger objections (which tend to be dismissed at a higher rate), as 55 standard cases were dismissed compared with 24 settlements. The robust rate of case resolutions has not kept up with the record filing rate, driving pending litigation up more than 7% since the start of the year to 848 cases.
