Securities Class Action Trends 2023: Not a Repeat of Year 2022 [REPORT]

Despite fewer companies going public in 2023, we saw an unwelcome uptick in class action lawsuit filings. After a period of relief in securities class action (SCA) filings—three years to be exact—the tide is officially turning. 

The 189 cases filed in 2023 represent a 13% increase from the previous year. In even worse news, there were $4.4 billion paid out in settlements last year—the heftiest sum in 10 years and an unfortunate illustration of what can be at stake financially for businesses caught in the crosshairs of securities class action litigation.

Let's look closer at class action filing trends in 2023, and what could be ahead for 2024 from Woodruff Sawyer’s Databox 2023 Year-End Report.

Securities Class Actions Against New Public Companies

The number of companies going public through an IPO declined in 2023, with only 115 companies making their debut (a 36% drop in IPOs from the decade's average).

One might have expected class action filings to follow suit. Yet, that wasn't the case.

Who helped fill in the gap? Companies that had recently gone public through de-SPAC transactions.

Even as de-SPAC deals plummeted by nearly half in 2023, de-SPACs were sued more often than IPO companies. Data show that the five-year average for filings against de-SPACs is 18% versus filings against traditional IPO companies at 13%.

The de-SPAC merger itself became less of an issue in 2023. Plaintiffs instead focused on the subsequent performance of the de-SPACed company. 

Securities Class Actions by Market Cap/Industry

Companies valued in the $2 billion or more range represented the majority of companies targeted by class actions. Specifically, those in the $2 billion to $10 billion range experienced an 8% increase in filings. 

Technology remained the most-targeted industry for class actions, with no change in the rate of filings from 2022 to 2023.

However, manufacturing moved up to the second-most vulnerable sector after technology in 2023, representing 19% of filings.

Emerging Trend: Economic Turbulence and Class Actions

Companies across industries faced class actions as they dealt with economic concerns that impacted their businesses.

In 2023, liquidity challenges led to bank mergers and acquisitions. This subsequently prompted eight class action lawsuits, accounting for 4% of the year's filings.

Other sectors dealing with issues that impacted their revenue growth—like inflation, higher interest rates, supply chain disruptions, and labor shortages—also experienced class actions at a rate of 5% of total filings.

Big Settlements 

The big news this year is the record-breaking sum of settlements paid out to the tune of $4.4 billion. In fact, 2023 marks the highest annual payout in more than 10 years.

Last year, the top 10 settlements all surpassed $100 million, a first-time occurrence when looking at data from the past decade. 

The size and quantity of larger settlements in 2023 contributed to a 42% increase over 2022 dollars paid out.

Outlook for 2024

As public companies better understand class action filing trends from 2023, they will be watchful for a range of factors that can impact world economies and their business, which can lead to more class actions in 2024.

Things like inflation and interest rates, fiscal deficit concerns, labor market issues, consumer spending habits, supply chain bottlenecks/restructuring, housing activity and commercial sector pressures, rate of economic growth, and geopolitical issues all contribute to a public company’s risk.

Unfortunately, there is also uncertainty when it comes to the fate of the D&O insurance market, with class actions continuing against high-worth companies and settlements reaching decade-high totals.

The good news for 2024, however, is that most companies will enjoy the upsides of a current soft market, as detailed in our Looking Ahead to 2024: A Guide for D&O Insurance Renewals—though it's unclear how much longer prices will decrease.

Download your copy of Woodruff Sawyer’s Databox 2023 Year-End Report for further analysis and data graphics on all the topics covered here, and more.