Thursday, February 7, 2013

Securities Class Action Filings Decrease in 2012

By Tim Dulaney, PhD and Tim Husson, PhD

Earlier this year, Cornerstone Research released 2012 review (PDF) of Securities Class Action Filings in conjunction with the Stanford Law School -- the press release can be found in here (PDF).    The report notes that the number of federal securities class action filings have decreased in recent years and, in particular, has fallen nearly 20% from 2011 to 2012.  For the number of filings over the past sixteen years can be found below (Figure 2 in their report).
Cornerstone attributes the majority of the decline in class action filings to the dramatic decrease in filings concerning mergers & acquisitions (M&As) as well as Chinese reverse mergers (CRMs).  The second circuit (NY, etc.) became the most active single venue for securities class actions in 2012 -- 30% of total filings -- after several years with the ninth circuit (Western US, etc.) contending for that title -- 18% of total filings in 2012.

A similar report was almost concurrently released by NERA Economic Consulting.  NERA found 207 federal securities class action filings 2012  and a more modest 8% decrease from the year prior.  For a comparison between these two studies and an explanation of this discrepancy, see the fantastic post by Lyle Roberts over at 10b-5daily.

So what issues might be the source of litigation in the future?  Cornerstone analyzed the 3,001 reports submitted to the SEC under the Dodd-Frank whistleblower program from October 2011 through September 2012.  The breakdown by issue shows a broad distribution of potential infractions:

In general the Cornerstone report suggests that the landscape of securities class actions is changing.  It will be interesting to see if recent regulatory changes, such as full implementation of Dodd-Frank and JOBS Act provisions, will result in a shift in the types of issues that lead to class litigation, or if market changes such as the rise of ETFs or the re-emergence of structured finance will lead to new types of disputes.

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