Securities Regulation Daily Wrap Up, TOP STORY—NERA analysis finds decrease in securities class actions, (Jan 31, 2022)
2021 saw only 205 new federal securities class action suits compared to 321 the year before.
In a new report, National Economic Research Associates, Inc. (NERA) highlights trends in securities class action litigation. The authors’ analysis of NERA’s database of class actions finds a sharp decrease in filings, resolutions, and median settlement values in 2021. Of the 205 federal filings last year, over 10 percent related to special purpose acquisition companies. While COVID-19 litigation continues, the 20 cases with a COVID-19-related claim still represent a decrease from 33 such suits filed in 2020.
Last year marks the first time since 2016 that fewer than 300 new federal securities class action suits were filed. The report’s authors, Janeen McIntosh and Svetlana Starykh, attribute this decline to a sharp decrease in merger-objection suits. While there were 103 new merger-objection filings in 2020, this number fell to 14 new filings in 2021.
Violations alleged. The most common violation alleged in 2021 filings was misleading future performance, accounting for 40 percent of alleged violations. Conversely, accounting-related violations dropped from 24 percent of actions to 16 percent from 2020 to 2021. Merger-integration allegations shot up in 2021 due to a substantial number of filings involving SPACs; when the NERA analysts excluded SPAC cases, merger-integration cases remained steady at 5 percent of cases in both 2020 and 2021.
In 2020, shareholders filed 33 class action cases with a COVID-19 component, 15 percent of which were against defendants in the technology services sector. In 2021, there were 20 cases with a COVID element, but fully half of these were against technology services defendants. The report authors highlighted another trend in COVID litigation: while in 2020 the most common allegation in such filings was a violation related to regulatory issues, only one case filed in 2021 included a regulatory claim. The most common allegation in the 2021 lawsuits related to future performance.
After COVID-19 and SPACs, the most common events driving new litigation in 2021 were cybersecurity breaches (5 cases), the opioid crisis (2 cases), and cannabis, environment, and #MeToo with one case each.
Settlements and dismissals. The NERA analysis also found resolutions returning to pre-2017 levels. In 2021, 239 were dismissed or settled. However, a greater proportion of these resolutions were dismissals than in the years prior to 2017. Of the 96 percent of cases where a motion to dismiss was filed, 73 percent saw a decision on the motion prior to resolution of the case, with the motion to dismiss granted in approximately 56 percent of these cases. A decision was reached prior to resolution in 56 percent of cases with a motion for class certification filed, with the motion for class certification granted in 83 percent of the cases with a decision.
Settlements in 2021 aggregated to $1.8 billion, which is $400 million lower than the inflation-adjusted $2.2 billion aggregate settlement amount in 2019, and considerably lower than the inflation-adjusted amounts of $3.1 billion and $5.2 billion in 2020 and 2018, respectively. Average settlement value shows a sharp decline in 2021 compared to 2020, but excluding settlements greater than $1 billion mitigates the decrease somewhat. The aggregate plaintiffs’ attorneys’ fees and expenses associated with settled cases was $451 million for 2021.
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