The number of new federal securities class actions brought last year fell by 19%, making 2012 the second-slowest year for new filings since 1997, according to a study issued last week by Cornerstone Research and Stanford Law School.
The decline, to 152 filings in 2012 from 188 the previous year, was particularly pronounced during the fourth quarter, the report said. Seeking to explain the drop, analysts cited the lack of a cause “du jour” in 2012 to compensate for a smaller number of filings related to U.S.-listed Chinese companies or to mergers and acquisitions. Another rich source of prior filings, the credit crisis, yielded no new cases in 2012.
“What stood out in 2012 was the absence of a filing trend that influenced the total number of new cases,” said John Gould of Cornerstone Research. “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.”
The report also noted that fewer very large companies were sued in 2012, with only 3.4% of S&P 500 companies named as defendants last year, compared to an average of 6.1% over the previous 12 years.
Berman DeValerio Partner Leslie Stern, who heads the firm’s New Case Investigations Team, agreed she was seeing an uptick in complaints against smaller companies, but cautioned against drawing conclusions from short-term filing trends.
“Based on the investigations we have undertaken, it is clear that fraud is alive and well at publicly traded companies of all sizes,” she said. “The allegations reported at smaller companies may not shake investor confidence like Enron did in the early 2000s or roil the markets like the credit crisis scandals, but the misbehavior is equally brazen and investors in those companies have taken a hit.”
Plaintiffs’ activity slowed particularly in the fourth quarter, when only 25 new cases were filed, the lowest total for any quarter in the last 16 years, the study said.
Another report, issued January 29 by NERA Economic Consulting, tallied a smaller decline in 2012 filings. NERA’s year-end review counted 207 new cases last year, 8% lower than the 225 filed in 2011. NERA, which uses a different methodology, said 53 cases objecting to corporate mergers “continued to fill in much of the gap” left by the dearth of cases related to the credit crisis or Chinese companies.
Turning to outcomes, NERA said only 93 securities class action settlements received approval in 2012, the lowest number since Congress rewrote the rules for such lawsuits in 1995. The number of dismissals also declined more than 50% from the previous year to 60, the lowest total since 1998. The NERA researchers attributed the small number of resolved cases to a low inventory at the start of the year and the possibility that some courts are awaiting the outcome of the Supreme Court’s ruling in Amgen, which could impact litigation. “The drivers of this deceleration are not fully known; it will be interesting to observe whether resolutions pick up pace again after the Supreme Court decides the Amgen case,” the report said.
Among the cases that were resolved in 2012, seven of the 10 largest class action recoveries involved financial institutions settling claims related to the 2008 financial crisis, according to Financial Recovery Technologies, a claims filing specialist. Fifth on the list was the Bear Stearns litigation, in which Berman DeValerio as co-lead counsel negotiated $294.9 million in settlements stemming from alleged false statements and materials omissions Bear Stearns made about its exposure to subprime and other high-risk mortgages.
Another observer of the securities litigation landscape, Kevin LaCroix, published his own analysis of 2012 filings on January 2. LaCroix’s figures showed 156 securities class actions in 2012, a 17% decline from the 188 he counted the previous year and further below the 1996-2011 annual average of 193 cases.
LaCroix offered three possible explanations for the fourth quarter drop: the same lack of a “cyclical phenomenon” cited by Cornerstone; a significant uptick in individual (vs. class action) lawsuits; and an effort by the plaintiffs’ bar to “diversify its product line.” He also conceded that the decline could reflect a normal ebb and flow of activity.
– January 31, 2013
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