Category Archives: Lies, Damn Lies, And Statistics

NERA Economic Consulting and Cornerstone Research have released their respective 2024 annual reports on federal securities class action filings.  As usual, the different methodologies employed by the two organizations have led to slightly different numbers, although they both identify the same general trends.

The findings for 2024 include:

1. The reports agree that overall filings have stayed steady. NERA finds that there were 229 filings (matching the number of filings in 2023), while Cornerstone finds that there were 225 filings (compared with 215 filings in 2023). Filings involving only Section 10(b)/Rule 10b-5 claims for securities fraud are an increasing percentage of the overall filings. Cornerstone found that 198 of the 225 filings fit this description, the highest level on record.  Relatedly, Cornerstone found that the number of federal and state 1933 Act filings decreased from 64 filings in 2022 to 32 filings in 2023 to 21 filings in 2024.

2. NERA found that filings against companies in the technology and healthcare sectors combined accounted for more than half of all filings, and the Second and Ninth Circuits accounted for 61% of filings (excluding merger objections and crypto unregistered securities cases).

3. Both reports agree that filings involving artificial intelligence (AI) claims are the fastest growing category. NERA and Cornerstone found that filings with AI-related claims more than doubled from 2023 to 2024 (NERA – 13 filings, Cornerstone – 15 filings).

4. NERA found that after excluding cases involving merger objections, crypto unregistered securities, or settlements of $0 to the class, around 42% of settlements had a recovery of less than $10 million, another 40% had a settlement between $10 million and $49.9 million, and 18% settled for $50 million or more, largely mirroring the distribution of settlement values from 2023. The average settlement value in 2024 was $43 million, a roughly 7% decline relative to the 2023 inflation-adjusted average settlement value of $46 million.

The NERA report can be found here. The Cornerstone report can be found here.

The 10b-5 Daily is catching up on posts after a very busy August and September, so thanks everyone for your patience. NERA Economic Consulting and Cornerstone Research released their 20224 midyear reports on securities class action filings in August.  While the different methodologies employed by the two organizations usually lead to slightly different numbers, they managed mostly to match for this report.

The key findings include:

(1) The reports agree that filings are at steady levels as compared to 2023, with only a handful of merger objection cases.  Both NERA and Cornerstone find that there were 112 filings in the first half of 2024 (up slightly from the second half of 2023).

(2) The categories of filings that both reports identify as potential growth areas for the year are COVID-19 (7-8 filings) and artificial intelligence (6 filings). In contrast, SPAC, cryptocurrency, and cybersecurity filings are down relative to past years.

(3) Both reports find that the annual number of filings against foreign companies is on track to be the lowest in the last ten years, even while the percentage of U.S. listings by foreign companies has steadily increased. For example, Cornerstone finds that foreign companies currently make up 24.7% of U.S. listings, but have only been the subject of 14.2% of the filings in the first half of 2024.

(4) NERA finds that there were 100 cases resolved in the first half of 2024, if which 52 were dismissed and 48 were settled.

The NERA report can be found here and the Cornerstone report can be found here.

NERA Economic Consulting and Cornerstone Research have released their respective 2023 annual reports on federal securities class action filings.  As usual, the different methodologies employed by the two organizations have led to slightly different numbers, although they both identify the same general trends.

The findings for 2023 include:

(1) The reports agree that there was a slight increase in overall filings. NERA finds that there were 228 filings (compared with 206 filings in 2022), while Cornerstone finds that there were 215 filings (compared with 208 filings in 2022). Although the overall numbers remain steady, both NERA and Cornerstone note that filings involving only Section 10(b)/Rule 10b-5 claims for securities fraud are an increasing percentage of the overall filings. For example, NERA found that 184 of the 228 filings fit this description, an increase of 34% from 2022.

(2) The number of M&A filings, filings alleging Section 11 claims for misstatements in registration statements, and state 1933 Act filings continues to drop. NERA found that there were only seven merger-objection suits in 2023, a ten-year low. Cornerstone found that the number of federal Section 11 and state 1933 Act filings decreased from 50 filings in 2022 to 19 filings in 2023 (a 62% decline).

(3) According to Cornerstone, the Ninth Circuit was the busiest circuit for core filings in 2023 with 67 new filings (32% of the national total). Core filings exclude M&A filings.

(4) NERA found that when excluding settlements of $1 billion or higher, the average settlement value was $34 million in 2023, a decrease of 12% from the $39 million inflation-adjusted amount in 2022. There was an aggregate settlement value of $3.9 billion and plaintiffs’ attorneys’ fees and expenses comprised 24.9% of that number.

The NERA report can be found here. The Cornerstone report can be found here.

Cornerstone Research has issued an interesting report on opt-outs in securities class action settlements (i.e., when a putative class member chooses not to participate in the settlement and may consider bringing its own direct action against the defendants). A few highlights from the results:

(1) The percentage of securities class action settlements with at least one opt-out has been steadily increasing, although it remains relatively small. The report concludes that from 1996 to 2005 the rate of opt-outs was 2.9%. From 2006 to 2018 the rate increased to 5.8%, and then has jumped from 2019 to H1 2022 to 11.5%.

(2) Opt-outs are more common in large securities class action settlements. The report determines that for the 2019 to H1 2022 period, opt-outs occurred in 29% of all settlements above $20 million and 62.5% of all settlements above $100 million.

(3) If institutional investors choose to opt-out, they are likely to bring their own direct actions. The report finds that from 2019 to H1 2022, there were 11 securities class action settlements where institutional investors chose to opt out (out of 287 total settlements) and in 10 of those instances at least one direct action was brought.

NERA Economic Consulting and Cornerstone Research have released their respective 2022 annual reports on federal securities class action filings.  As usual, the different methodologies employed by the two organizations have led to slightly different numbers, although they both identify the same general trends. (Note: one key difference is that Cornerstone includes securities class actions alleging claims under the Securities Act of 1933 that are filed in state court, which appears to have added 11 filings to its 2022 total).

The findings for 2022 include:

(1) The reports agree that there was a slight decline in overall filings, with the scarcity of M&A-related filings over the past two years being the prime driver of the historically low numbers. NERA finds that there were 205 filings (compared with 210 filings in 2021), while Cornerstone finds that there were 208 filings (compared with 218 filings in 2021). Note that the number of non-M&A filings tracks the historical average of about 200 cases a year.

(2) Filings related to special purpose acquisition companies (SPACs) continued to be significant, constituting more than 10% of all filings. NERA identified 25 SPAC-related cases (up from 24 in 2021), while Cornerstone identified 24 SPAC-related cases (down from 33 in 2021). That said, the pace of SPAC-related filings appears to be decreasing, with Cornerstone concluding that there were only 6 filings in the second half of the year.

(3) Both NERA and Cornerstone analyzed the number of filings with cryptocurrency-related claims, which include unregistered securities filings. NERA identified 25 filings with cryptocurrency-related claims (as compared to 10 in 2021), while Cornerstone identified 23 filings with cryptocurrency-related claims (as compared to 11 in 2021). Given the level of SEC enforcement activity in this area, Cornerstone expects filings in this area to continue at elevated levels in 2023.

(4) Cornerstone finds that the number of federal filings with Section 11 claims and state filings alleging claims under the Securities Act of 1933 surged due to heightened IPO activity in 2021 and subsequent stock price declines the following year.

(5) NERA finds that if settlements related to merger objections, settlements with no cash payment to the class, settlements related to crypto unregistered securities cases, and individual cases with settlements of $1 billion or greater are removed, the annual average settlement value in 2022 was $38 million (a significant increase over the 10-year low of $21 million in 2021).

The NERA report can be found here.  The Cornerstone report can be found here.

NERA Economic Consulting and Cornerstone Research released their 2022 midyear reports on securities class action filings last month.  As usual, the different methodologies employed by the two organizations have led to slightly different numbers, although they both identify the same general trends.

The key findings include:

(1) The reports agree that filings are at steady levels as compared to 2021, with only a small number of M&A-related cases.  NERA finds that there were 101 filings in 2022 H1, while Cornerstone finds that there were 110 filings in 2022 H1 (up slightly from 2021 H2).

(2) SPAC filings continue to be a key component. NERA finds that there were 19 SPAC-related filings and Cornerstone finds that there were 18 SPAC-related filings. Both reports agree that SPAC filings are on pace to easily exceed the total SPAC filings in 2021.

(3) Cornerstone finds that SPAC, cryptocurrency, and COVID-19 filings remained elevated with 18, 10, and 8 filings respectively. On other hand, filings against non-U.S. issuers are on track to be less than half of 2020’s record high of 74, but in line with the 2012-2016 historical average.

(4) NERA finds that the most common allegation in cases filed in the first half of 2022 is misled future performance (30%).

The NERA report can be found here and the Cornerstone report can be found here.

NERA Economic Consulting and Cornerstone Research have released their respective 2021 annual reports on federal securities class action filings.  As usual, the different methodologies employed by the two organizations have led to slightly different numbers, although they both identify the same general trends.

The findings for 2021 include:

(1) The reports agree that there was a significant decline in filings, primarily driven by a sharp drop in the number of M&A-related filings (down over 80%).   NERA finds that there were 205 filings (compared with 321 filings in 2020), while Cornerstone finds that there were 218 filings (compared with 333 filings in 2020).

(2) Both NERA and Cornerstone analyzed the number of filings with COVID-19 related claims: NERA identifies 20 filings with COVID-19-related claims (less than in 2020), while Cornerstone identified 17 filings with COVID-19-related claims (the same as in 2020, but with fewer filings in the second half of the year).

(3) Filings related to special purpose acquisition companies (SPACS) rose significantly, constituting more than 10% of all filings.  NERA identified 24 SPAC-related cases, while Cornerstone identified 32 SPAC-related cases.

(4) The Second Circuit (New York) and Ninth Circuit (California) traditionally have been the locations with the most filings, but that peaked this past year.  According to Cornerstone, 72% of all standard filings were brought in those courts, the highest combined proportion of any two circuits since tracking began in 1997.

(5) NERA finds that if settlements related to merger objections, settlements with no cash payment to the class, and individual cases with settlements of $1 billion or greater are removed, the annual average settlement value in 2021 was $21 million.  That is the lowest annual average within the most recent 10 years.

The NERA report can be found here.  The Cornerstone report can be found here.

NERA Economic Consulting and Cornerstone Research have released their respective 2020 annual reports on federal securities class action filings.  As usual, the different methodologies employed by the two organizations have led to slightly different numbers, although they both identify the same general trends.

The findings for 2020 include:

(1) The reports agree that there was a significant decline in filings, with less than 400 overall filings for the first time since 2017.  The reports state that a drop in M&A-related cases is responsible for most of the decline, although “standard” filings alleging violations of Rule 10b-5, Section 11, and/or Section 12 were also down.  NERA finds that there were 326 filings (compared with 420 filings in 2019), while Cornerstone finds that there were 334 filings (compared with 427 filings in 2019).

(2) Both NERA and Cornerstone analyzed the number of filings with COVID-19 related claims: NERA identifies 33 filings with COVID-19-related claims, while Cornerstone identifies 19 filings with COVID-19-related claims.

(3) In 2019, there was a leap in the number of standard filings in the Second Circuit, which accounted for nearly twice the number of filings as the Ninth Circuit.  In 2020, however, the numbers reverted to the norm, with the Second Circuit (NERA – 69; Cornerstone – 77) and Ninth Circuit (NERA – 79; Cornerstone – 79) having a similar number of standard filings.  The Third Circuit had the next highest number of standard filings (NERA – 25; Cornerstone – 24).

(4) The percentage of cases brought against foreign issuers continues to rise.  Cornerstone finds that there were 74 standard filings against foreign issuers in 2020 (compared to 57 filings in 2019), representing 33% of all standard filings.

(5) NERA finds that if settlements related to merger objections, settlements with no cash payment to the class, and individual cases with settlements of $1 billion or greater are removed, the annual average settlement values have been stable over the last four years, ranging from $26 million to $31 million.

The NERA report can be found here.  The Cornerstone report can be found here.

NERA Economic Consulting and Cornerstone Research have released their respective 2019 annual reports on federal securities class action filings. As usual, the different methodologies employed by the two organizations have led to different numbers, although they both identify the same general trends.

The findings for 2019 include:

(1) The reports agree that there continue to be a record or near-record number of filings, with an increase in “standard” filings alleging violations of Rule 10b-5, Section 11, and/or Section 12 offsetting a decline in M&A-related cases.  NERA finds that there were 433 filings (the same as the 433 filings in 2018), while Cornerstone finds that there were 428 filings (compared with 420 filings in 2018).

(2) Over the last few years, the Second Circuit and Ninth Circuit have had a similar number of standard filings.  In 2019, however, both NERA and Cornerstone report that the number of Second Circuit standard filings was nearly double the number of Ninth Circuit standard filings (NERA – 103 (2d) v. 52 (9th); Cornerstone 108 (2d) v. 56 (9th)).  The Third Circuit had the next highest number of filings (NERA – 28; Cornerstone – 32).

(3) Filings against foreign issuers had steadily increased from 2013-2017, with these companies facing a disproportionate (as compared to their percentage of listings) risk of securities class action litigation.  In 2018, the numbers took a dip, but they have rebounded to a record high.  Cornerstone finds that there were 57 standard filings against foreign issuers in 2019, representing 24.3% of all standard filings.

(4) NERA reports a sharp increase in standard filings based on missed earnings guidance (from an average of 20% of filings over the past four years to 32% of filings in 2019).

(5) NERA finds that the average settlement value ($30 million) held steady and the median ($12.8 million) settlement value increased slightly.  However, the median settlement values in 2018 and 2019 were more than 25% higher than the median settlement values in the previous three years, reflecting a downward trend in the proportion of cases settled for less than $10 million.

The NERA report can be found here. The Cornerstone report can be found here.