Lull in Securities Suit Filings in the Year’s First Half

After three consecutive years in which securities class action filings were at or near record-high levels, the number of filings declined slightly in the first six months of 2020, at least compared to the pace of filings during the 2017-2019 time period. This relative decline appears to be pandemic-related, at least in part, which raises the question of whether the relatively lower filing pace in the year’s first half will continue as the year progresses. However, even if the apparent filing lull does continue, the 182 first half state and federal securities suit filings implies a total year-end number of securities class action lawsuit filings of 364, which would be well below 2019’s year-end total of 428 — although still far greater than the 1997-2018 annual average number of 215 securities suit filings per year.

Driving Factors

There were several factors contributing to the relative decline of securities suit filings in the year’s first half, including, in particular, the fact that filings in the months of May and June were well below the filings in the immediately preceding months. This is perhaps as a result of government stay-at-home orders and court closures. According to Cornerstone Research’s report on first-half filings, the reduced number of filings is largely a reflection of a reduced number of merger objection lawsuits and Section 11 lawsuit filings — perhaps as a result of pandemic-caused reduction in the number of merger transactions and IPO filings in the year’s first half.

Looking Ahead

It appears that the year’s second half filings activity is returning to the heightened levels that prevailed during the period 2017-2019. Thus, while there were a total of only 39 federal court securities class action lawsuit filings in May and June, in July and August there were a total of 55 federal court securities suit filings. It could become clear by year-end that the apparent lull in the year’s first half was only a temporary, short-term phenomenon. A 2020 securities suit filing total lower than the tallies in the last three years would be welcomed by the D&O insurance industry; however, a relatively lower year-end total that would still be well above historical levels is unlikely to have a significant impact on how D&O insurers perceive the level of securities litigation risk.

The contents of this blog were sourced directly from RT ProExec Insights Volume XXI, Issue 1, Fall 2020.