Decline in Section 11 cases leads to overall reduction in filing activity.

Plaintiffs filed 182 new securities class action lawsuits in federal and state courts in the first half of 2020, as the COVID-19 pandemic triggered extreme volatility in the financial markets, according to a report released  by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

The report, Securities Class Action Filings—2020 Midyear Assessment, found that the number of filings remained higher than the historical average, but was 18% lower than in the second half of 2019 and the lowest level since the second half of 2016. The filing slowdown affected both core and M&A filings, which declined by 13% and 25%, respectively.

As the economic consequences of the COVID-19 pandemic became apparent, many industries experienced significant declines in market capitalization in the first half of the year.

Section 11 and 1933 Act filings declined more substantially than M&A and core federal filings, and were the main cause of reduced filing activity in the first half of 2020. Due to a steep decline in state court–only and parallel filings, the number of Section 11 and state 1933 Act filings in the first half of 2020 was roughly a quarter of the number of such filings in 2019.

Eleven complaints involving COVID-19 allegations were filed in the first half of the year. Aside from a flurry of cryptocurrency and cannabis-related filings, other event-driven cases—including those related to data breaches, opioid filings, or sexual harassment allegations—declined in the first half of 2020. Most cryptocurrency filings named non-U.S. issuers and three of the four cannabis-related complaints involved Canadian firms.

Key Trends

• S&P 500: Core federal filings against S&P 500 firms in 2020 occurred at an annualized rate of 4.8%, the lowest since 2015.

• U.S. vs. Non-U.S. Companies: Almost one-third of core federal filings were against non-U.S. issuers in 2020 H1, the second-highest percentage on record. Annualized core federal filings against non-U.S. issuers are on pace to be the highest on record.

• Industries: The first half of 2020 saw an uptick in filing activity in the financial sector, with the number of filings increasing by 50% from this time last year, and Maximum Dollar Loss increasing tenfold. The number of technology and communications filings declined after rising in recent semiannual periods.

• Federal Circuits: There were 40 core federal filings in the Second Circuit in the first half of 2020, dropping from 51 and 52 in the first and second halves of 2019, respectively. Plaintiffs filed 35 complaints in the Ninth Circuit, up from 24 in the second half of 2019.

• Dollar Disclosure Loss: This measure of litigation activity decreased by 25% from $108 billion in the second half of 2019 to $81 billion in the first half 2020.

• Maximum Dollar Loss: This measure of litigation activity increased by 48% from $394 billion in the second half of 2019 to $584 billion, due partially to market capitalization losses in a broad swath of industry sectors during the first half of the year.

Read the report, Securities Class Action Filings—2020 Midyear Assessment.

With contributions from Joseph A. Grundfest.