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Securities Class Actions Report: Mid-Year Update

July 19, 2022

/Management Liability/D&O

Good news: The downward trend of securities class actions against public companies continues as we look at the first half of 2022. If the trend holds for the second half of 2022, the rate of securities class action litigation against public companies will be down for a third year in a row, according to Woodruff Sawyer’s proprietary database, the D&O DataBox.

In total, plaintiffs filed 85 suits in the first half of 2022. At the current rate of filings, the projected outcome for year-end 2022 is 170 cases. That is fewer than the 182 cases filed in 2021, the 210 cases filed in 2020, and the 268 cases filed in 2019.

If 2022 goes as expected, we would see another 7% drop in annual class actions by the close of the year.

Column chart depicting the last decade: Securities Class Action filings peaked in 2019 and are currently trending downwards.

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Which Types of Class Actions Happen the Most?

We see the usual suspects when it comes to class actions, including IPO companies and now, de-SPACS. Novelty cases have emerged since the pandemic hit, and we may continue to see more of those as well.

More specifically:

  1. De-SPAC transactions (20%): There has been a total of 57 cases filed against de-SPACs from 2019 to the first half of 2022.
  2. IPO companies (13%): Typical Section 11 cases were filed against 11 IPO companies in the first half of 2022.
  3. COVID-19 cases (9%): Plaintiffs filed suit against eight companies related to COVID-19 matters in the first half of 2022.

Which Industries Are at Risk?

The biotech and technology sectors consistently hold the top two spots for class actions and that remains the same for the first half of 2022.

Filings against biotechnology companies, however, have been down since the first half of 2021. On the other hand, class actions against tech companies are up.

Column chart depicting filings by industry 1H 2021 versus 1H 2022 - The biotech and technology sectors consistently hold the top two spots for class actions

After these sectors, the industries hit the most with class actions this year included manufacturing, financial, and services.

The Top 10 Settlements for the First Half of 2022

Even though class action litigation is down this year, settlements, unfortunately, are not. In the first half of 2022 there were 48 settlements totaling $1.4 billion.

Top settlements included:

  1. Teva Pharmaceutical Industries Ltd. (biotechnology): $420 million for price-fixing and collusion related to a large acquisition.
  2. BlackBerry Limited (technology): $165 million for misrepresentation of revenue growth that led to a write down of $1 billion of unsold devices and layoff of 40% of the workforce.
  3. Walgreens Boots Alliance, Inc. (trade/retail): $105 million for misrepresentation of revenue growth pertaining to a merger.
  4. Nielsen Holdings Inc. (service): $73 million for misrepresentation of revenue growth related to EU data privacy laws.
  5. Mallinckrodt Pharmaceuticals (biotechnology): $65.75 million for violation of antitrust laws.
  6. Bank OZK (financial): $45 million for misrepresentation of ability to assess credit risks.
  7. Chicago Bridge & Iron Company (construction): $44 million for post-acquisition accounting issues.
  8. Uniti Group, Inc. (financial): $38.88 million for misrepresentation of revenue growth pertaining to its spin-off.
  9. 2U, Inc. (technology): $37 million for misrepresentation of revenue growth.
  10. Nissan Motor Co., Ltd. (manufacturing): $36 million for misrepresentation of CEO’s compensation and use of corporate assets for personal purposes.

The biotech sector saw the highest percentage of settlements, followed by technology, then retail:

Column chart depicting percentage of total settlement dollar amount by industry (1H 2022) - The biotech sector saw the highest percentage of settlements, followed by technology, then retail.

For more information on how settlements are tracking with the 10-year average, median, and 75th percentiles, see the full report.

Predictions for the Remainder of 2022

If the rate of class action filings remains steady, which we expect, we will see another year with fewer class actions overall. However, the possibility of a recession looms and could impact the rate of filings. In our experience, economic downturns lead to disappointed shareholders; litigation may ensue.

We will keep our eye on de-SPAC transactions and IPO companies, as they continue to be a target for class actions.

On the D&O insurance front, the market for coverage is softening rapidly, reflecting the lower rate of litigation. We look forward to sharing more on how the market is developing in the September release of our annual Looking Ahead report.

Find Out More

Get your copy of the 2022 DataBox Mid-Year Update for more details on the state of securities class actions for the first half of 2022.

Download now >>

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All views expressed in this article are the author’s own and do not necessarily represent the position of Woodruff-Sawyer & Co.

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn

Priya Cherian Huskins

Senior Vice President, Management Liability

Editor, Management Liability/D&O

Priya is a recognized expert and frequent speaker on D&O liability risk and its mitigation. In addition to consulting on D&O insurance, she counsels clients on corporate governance matters, including ways to reduce their exposure to shareholder lawsuits and regulatory investigations. Priya serves on the board of an S&P 500 public company and a large private company and has an impressive list of publications, speaking engagements, and awards for her influence and expertise in the industry. 

415.402.6527

LinkedIn