Securities Class Actions and IPOs Increased In The First Half of 2014

by Dorsey & Whitney LLP

The number of securities class actions filed in the first half of this year increased compared to the same period last year. During the same period the number of IPOs increased significantly, suggesting that in the future there may be even more securities class actions brought, according to a new report from Cornerstone Research (here).

This year plaintiffs have filed 78 new federal class action securities cases, an increase over the 66 filed during the same period in 2013. The number of actions filed in the first have of the year is less than the 82 filed in the second half of 2013, however. It is also less than the semiannual average between 1997 and 2013 of 95 cases filed.

If securities class actions continue to be filed for the remainder of the year at the same pace, a total of 156 suits will be brought in 2014. That would be the second lowest number since 2006 when a total of 120 securities class actions were filed. In the interim years there were 166 actions filed in 2013, 152 in 2012, 188 in 2011, 175 in 2010, 167 in 2009 223 in 2008 and 177 in 2007.

During the first half of 2014 there were no mega suits filed. The largest concentration of suits were filed against companies in the healthcare, biotechnology and pharmaceutical areas, accounted for 21% of the actions. Within the group suits against biotech companies doubled compared to the prior two semiannual periods. At the same time those brought against healthcare firms declined significantly in comparison.

Suits against firms in the financial sector increased slightly in the first half of this year compared to the second half of 2013. This sector accounted for 14% of all filings, the highest since the first half of 2011. Filings against communication companies, on the other hand, declined from 14 in the second half of 2013 to 5 in the first half of this year.

The number of suits brought against foreign firms declined in the first half of the year to 12% of the filings, compared to 18% for 2013. No suits were brought against Canadian firms in the first half of this year in contrast to the first and second halves of 2013 when those suits accounted for 27% and 26% of the total foreign filings, respectively. Filings against European companies, however, continued at a pace consistent with the rate in 2013.

Traditionally the Second and Ninth Circuits have been the leaders in the number of suits filed. In the first half of this year the 22 filings in the Second Circuit were close to its historical average of 24. Filings in the Ninth Circuit declined by 17% to 20 compared to its historical average of 24 to 20. Interestingly, filing activity for the first half of the year appears to have been less concentrated in the Second and Ninth Circuit. During the first half of the year the Sixth, Eighth and Tenth Circuits equaled or exceeded the number of filings in those circuits for the full year of 2013.

The number of suits brought against NYSE firms increased by 10% in the first half of this year, compared to the second half of 2013. For NASDAQ firms the trend was reversed. Filings decreased by 33% in the first half of this year compared to the second half of last year. Overall, about 1 in 60 companies listed on a major U.S. exchange was the subject of a securities class action in the first half of 2014. If the rate of filing these cases continues in the second half of the year, it will be comparable to 2013.

For the first time since 1998 the number of companies listed on U.S. exchanges increased over the course of the year. Likewise, IPO activity for the first half of the year was strong with 112 offerings. At this pace the number for the year will exceed 2013 by 43%. That would represent a increase for the third consecutive year. In the first half of the year IPO activity equaled 71% of 2013 and exceeds that of 2009, 2010 and 2012. These companies, however, tend to be higher risk in their high growth stage of development. Thus they are more likely to have extreme positive and negative performance surprises and thus increased litigation risk, according to the Cornerstone Report.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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