The securities class action landscape has changed quite a bit in the past year and the news is good: securities class actions filings are down 13% compared to the first half of last year.
According to Woodruff Sawyer’s proprietary database, the D&O DataBox, 91 securities class actions were filed in the first half of 2021. This means that, for the first time in a long time we may see a drop below the 10-year average of 186 cases annually, with a forecasted total of about 182 average cases in 2021. (This assumes that filing activity does not pick up in the second half of the year.)
Section 11 Class Actions Update
In looking at Section 11 class actions in 2021, a brief background might be useful to start. Parallel filings—when IPO companies are sued for the same Section 11 allegations in both federal and state courts—peaked for the decade in 2019.
This was due to a decision by the Supreme Court of the United States in Cyan v. Beaver County Employees Retirement Fund in 2018, which allowed for duplicate filings in state courts for these types of cases (traditionally handled only in federal court).
In 2020 however, the Delaware Supreme Court in Sciabacucchi v. Salzberg held that federal forum provisions in a company’s charter documents, which designate federal courts as the only venue for this type of litigation, were valid—and it seems to be having an impact on parallel filings as shown below.
|Time Period||Parallel Filings (% of Section 11 IPO filings)|
|2019||51% of 71 cases|
|2020||52% of 31 cases|
|1H 2021||18% of 11 cases|
Percentage of parallel cases filed against IPO companies since 2019, D&O DataBox
When it comes to overall Section 11 case filings in 2021, however, for the most part it is business as usual despite a minor drop in overall activity.
Section 11 cases against IPO companies, D&O DataBox
De-SPAC Company Class Actions Update
Turning our attention to SPACs, the number of securities class action lawsuits filed in 2021 against companies that recently went public through a de-SPAC transaction have been significant given the relatively short time spans that many of these companies have been reporting as a public company.
SPAC-Related Companies and Securities Class Actions Filed
|Year of Suit||Number of Cases||Cases per Month|
|2019||2 cases filed||0.2|
|2020||5 cases filed > a 150% increase from 2019||0.4|
|1H 2021||15 cases filed > a 200% increase from 2020||2.5|
SPAC securities class actions, D&O DataBox
Of course, SPAC world is facing more litigation than just post-business combination litigation. You can read more about common types of lawsuits in the recent article, As Predicted: More SPACs Are Leading to More Litigation.
COVID Class Actions Update
Twelve percent of the 91 securities class actions filed in the first half of 2021 had COVID-related allegations. This brings the total of COVID-related cases filed since the pandemic to 31.
The average number of cases filed per month has been pretty comparable from 2020 to 2021. In the first half of 2021, there were 1.8 cases filed per month versus 1.7 cases filed per month in 2020. Below, you can see a breakdown of industry and the companies involved in COVID class actions.
COVID-Related Securities Class Actions filed in 1H 2021
COVID-related securities class actions in the first half of 2021, D&O DataBox
Find Out More
Download your copy of the 2021 DataBox Mid-Year Update for more details on securities class action, including settlements for the first half of 2021, predictions for the remainder of 2021, and how this litigation might impact the cost of D&O insurance.
Visit our SPACs industries page for more insights and resources related to Special Purpose Acquisition Companies.
Real-Time Data: Actionable Information About D&O Litigation
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More good news on the Section 11 front for new public companies: In Volonte v. Domo, Inc. a state court in Utah granted a motion to dismiss a Section 11 lawsuit due to the company’s federal forum provisions.
Woodruff Sawyer’s annual Guide to Going Public walks you through each step of coordinating your D&O risk management with your IPO.