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Recent Trends in Securities Litigation
By: Jonathan Saidel and Jack Stalzer, Rosen Law Firm
Securities fraud class action litigation is a paramount means through which investors of all types, including institutional pension funds, can recover investment losses in cases of corporate misconduct. Securities class actions have been a growing field, fueled by increases in cryptocurrency filings, COVID-19 filings, and SPAC filings.
This is an excerpt from NCPERS Fall 2022 issue of PERSist, originally published October 13, 2022.
Securities litigation, a paramount means through which pension funds and other investors can reclaim investment losses stemming from corporate misconduct, remains an active and thriving subset of litigation in the aftermath of the COVID-19 pandemic. In addition to an increase in the number of securities class action filings, maximum dollar loss and disclosure dollar loss, two measures of the damages incurred by plaintiffs in securities class action lawsuits, have grown to all-time highs. In fact, the maximum dollar loss index rose 150% in the first half of 2022, making it more than triple the 1997-2021 semiannual average. This indicates that investors are attempting to recover more of their losses through securities class action lawsuits than at any other time. Pension funds find themselves at the forefront of this legal arena as they increasingly act as lead plaintiff in such cases.Securities fraud class action litigation is a paramount means through which investors of all types, including institutional pension funds, can recover investment losses in cases of corporate misconduct. Securities class actions have been a growing field, fueled by increases in cryptocurrency filings, COVID-19 filings, and SPAC filings.
This is an excerpt from NCPERS Fall 2022 issue of PERSist, originally published October 13, 2022.
Historically, securities class action filings rise when markets decline because during these times, investors focus on identifying valid explanations for the fall in asset values, one of which is corporate misconduct. This makes the recent rise in securities class action suits particularly interesting, as it has taken place while financial markets boomed during 2020-21.
The growing popularity of price-volatile crypto currencies and initial coin offerings (ICOs) that often fail to disclose their associated risks, along with the rise of Special Purpose Acquisitions companies (SPACs), a quick way of going public or conducting a merger with minimal due diligence and transparency requirements, have created ample opportunities for litigation. Furthermore, the industry that has composed the largest share of securities filings since 1996, the biopharma and healthcare industry (see Figure 1), is home to another leading type of securities cases: COVID-19 filings, which deal with companies that created products to fill a demand generated by the virus. Half of the COVID-19 filings in the first half of 2022 (four) were within the healthcare and biopharma industry. COVID-19-related cases continue to be filed at elevated levels in 2022.
Figure 1: Securities Filings by Industry (1996-2022)
From Heat Maps & Related Filings by Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse, 2022, https://securities.stanford.edu/industry.html.
From Heat Maps & Related Filings by Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse, 2022, https://securities.stanford.edu/industry.html.
Both SPACs and cryptocurrency cases compose larger shares of securities fraud class action cases in the first half of 2022 than they did in the past, with 18 and 10 filings, respectively. Therefore, these types of cases will likely exceed last year's totals, with technology-related SPAC filings already surpassing the 2021 total. This trend will likely persist, thereby providing numerous opportunities for securities class actions, regardless of the performance of financial markets.
Figure 2: Trend Cases in Securities Class Action Lawsuits since 2018
From Securities Class Action Filings 2022 Midyear Assessment by Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse, 2022, https://securities.stanford.edu/research-reports/1996-2022/Securities-Class-Action-Filings-2022-Midyear-Assessment.pdf.
From Securities Class Action Filings 2022 Midyear Assessment by Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse, 2022, https://securities.stanford.edu/research-reports/1996-2022/Securities-Class-Action-Filings-2022-Midyear-Assessment.pdf.
Beyond the above case-types fueling securities litigation growth, dropping asset prices and the onset of a bear market also increase litigation, as investors experience losses more frequently, some of which can be recovered in instances of corporate wrongdoing in a class action. Therefore, securities litigation is growing (by dollars lost) and provides investors such as pension funds recourse to recover losses. This opportunity is especially important for underfunded plans.
Reference:
Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse, 2022, Securities Class Action Filings 2022 Midyear Assessment, https://securities.stanford.edu/research-reports/1996-2022/Securities-Class-Action-Filings-2022-Midyear-Assessment.pdf.
Bio
Jonathon (Jon) Saidel has a long and distinguished career in Pennsylvania politics and in the roles of attorney, accountant and author. He served as Philadelphia city controller for four terms, each time earning reelection by a wide margin, and enacting financial reforms that have saved taxpayers upwards of $500 million. Later, in 2010, he went on to campaign for lieutenant governor of Pennsylvania, where he was runner-up to Scott Conklin. A lifelong resident of Northeast Philadelphia, Jon's tireless dedication to fiscal discipline reduced the city's tax burden and spurred economic development. Today, Jon is a partner at the Rosen Law Firm.
Jack Stalzer works as an associate at the Rosen Law Firm's Institutional Investor Relations division, providing individualized portfolio monitoring services to public and union pension funds, Taft Hartley, mutual funds, hedge funds, endowments, and family offices that identifies potential recoverable losses for our institutional clients' portfolios due to corporate fraud and misconduct.
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