Understanding the threats on the horizon is the critical first step to protecting directors and officers. Securities class action suits are the high-severity risk faced by public company directors and officers today.
Woodruff Sawyer collects data on and analyzes all securities class action lawsuits filed in federal courts against public companies by holders of common or preferred stock in the D&O DataBox™ database.
We just released the Mid-Year Securities Class Action Flash Report. I’ll share some of the highlights with you here.
It was around this time last year that we saw the surprising uptick in the number of newly filed securities class action suits. We knew that 2015 could be a record year, and it was. It turned out to have the most filings in any one year in a decade’s worth of data.
Now in 2016, if the momentum we are seeing now stays on pace, we’ll see another record-breaking year for these types of lawsuits.
By the end of June this year, 102 securities class action lawsuits had been filed against public companies. This is a 23 percent increase over filings for this same time period last year. To put this into perspective, in 2015, the total number of securities class actions filed was 179.
If plaintiffs were to keep up the pace of filings for the remainder of the year (an average of 17 cases per month), almost 200 cases would be filed in 2016. However, we’ve seen a slowing trend in Q2. Still, we are predicting that the total number of filings will fall between 150 and 200 in 2016.
Same Sectors, Different Year
Like in 2015, the technology and biotech sectors are being hit with most of the filings. The chart below represents a mid-year review of the cases filed through June 2016.
Trailing just behind the tech industry, the biotech sector has seen a steady rise in securities class actions from 2011 to 2014, with a slight dip in 2015. By June 2016, we saw 20 cases filed; in all of 2015, there were a total of 29, so this year could easily outpace last year.
IPOs Continue to be a Target
IPO companies are especially vulnerable to securities class actions for a number of reasons. In Q3 2015, more than half of the class actions filed (28 total) were against companies that went public in 2014. In 2016, we see the trend of securities class action suits targeting IPO companies continuing.
For the first half of the year, 28 percent of the securities class action lawsuits were against companies that went public in the previous two years (2014 and 2015), and 44 percent of the lawsuits were against companies that went public in the previous five years (2011 thru 2015).
A new trend that I discussed in a guest post for the D&O Diary is the trend of Section 11 lawsuits being filed in state courts, particularly California state courts.
Since 2009, there have been a total of 40 Section 11 claims filed with 65 percent of them occurring in the last year and a half. The majority of the cases concerned the company’s IPO activities.
M&A Lawsuits Finding a New Forum
Delaware took a stance on disclosure-only settlements in 2016, and many hoped it would temper these type of suits. And it did. The number of M&A suits filed in Delaware is down. However, it looks as though plaintiffs are packing up to find a new forum for M&A-related lawsuits: the federal courts.
In 2015, 18 percent of M&A lawsuits were filed in federal courts. By contrast, an analysis of 2016 shows 34 percent of M&A suits were filed in federal courts—almost double the filing rate of 2015.
Staying abreast of what’s trending this year can help companies have more meaningful conversations and create more thoughtful strategy when it comes to protecting Ds and Os, as well as the balance sheet of the company they serve.
For more information on how 2016 is shaping up in terms of securities class actions, including detailed information on specific sectors, companies and settlements, download the latest issue of this report in our DataBox series, here.
The views expressed in this blog are solely those of the author. This blog should not be taken as insurance or legal advice for your particular situation. Questions? Comments? Concerns? Email: firstname.lastname@example.org.