Menlo Park, Calif.—Declines in state court filings and filings related to M&A contributed to a 22% decrease in the number of securities class actions filed in 2020. Plaintiffs filed complaints against fewer than 400 issuers for the first time since 2016, according to a report released today by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. The total dollars at risk in the 2020 cohort, measured by Maximum Dollar Loss and Disclosure Dollar Loss, was, however, comparable to 2019 exposure levels.

The report, Securities Class Action Filings—2020 Year in Review, found that plaintiffs filed 334 new securities class action cases in federal and state courts in 2020, compared to a record 427 filings in 2019. There were 234 core filings—those excluding M&A activity—down 12% from 2019 levels. Federal M&A filings fell 38% from the previous year.

The number of state court filings alleging claims under the Securities Act of 1933 fell sharply, possibly due to the Delaware Supreme Court’s March 2020 decision in Salzberg v. Sciabacucchi.

Despite the smaller number of companies sued, market capitalization losses were comparable to the elevated levels seen over the past three years. There were 30 filings with a Maximum Dollar Loss of at least $10 billion in 2020, more than twice the historical average.

The number of state court filings alleging claims under the Securities Act of 1933 fell sharply, possibly due to the Delaware Supreme Court’s March 2020 decision in Salzberg v. Sciabacucchi upholding the validity of federal forum-selection provisions in corporate charters.

“This decline contrasts sharply with the substantial increase in state 1933 Act securities filings in the last few years, which reached a historic high in 2019,” said Alexander “Sasha” Aganin, a report coauthor and Cornerstone Research senior vice president. “In the last six months, four trial courts in California have enforced these federal forum-selection provisions; no trial court has ruled that they are unenforceable. In the future, other courts will likely consider this issue.”

Two trends that may persist emerged during the year. Plaintiffs filed 19 complaints relating to COVID-19. These complaints included allegations that companies negatively impacted by the virus failed adequately to disclose the virus’s adverse effects on their financials, and that misleading statements were made about products produced or in development by the issuer.

The year also witnessed an explosion in special purpose acquisition company (SPAC) activity. More than half of all IPOs in 2020 involved SPACs, with over $75.3 billion raised across 248 SPAC IPOs in the United States. Five SPAC-related complaints were filed in 2020.

“There is every reason to believe that plaintiffs will be carefully examining the SPAC market, and no one should be surprised if 2021 witnesses a sharp uptick in claims against SPAC issuers,” said Professor Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, and a former Commissioner of the Securities and Exchange Commission. “I also expect a continued decline in state-based litigation of 1933 Act claims as courts continue to embrace federal forum provisions.”

Key Trends

• The percentage of U.S. exchange-listed companies subject to securities class action filings fell for the first time in eight years, from nearly 9% in 2019 to 6.3% in 2020 but remained well above historical averages.

• Disclosure Dollar Loss: This measure of litigation activity decreased by 13% to $245 billion in 2020. DDL is the dollar value change in the defendant firm’s market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period.

• Maximum Dollar Loss: This measure of litigation activity rose by 33% to nearly $1.6 trillion, driven by several mega filings with MDL of at least $10 billion. MDL is the dollar value change in the defendant firm’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period.

• Among S&P 500 companies, 4.4% were targeted in a core federal filing in 2020, the lowest percentage since 2015.

• There were 31 core federal filings against Asia-based firms, the highest since a spike in Chinese reverse merger filings in 2011.

• The 79 core federal filings in the Ninth Circuit marked the highest number on record, while the 77 core federal filings in the Second Circuit fell from their record high in 2019 but were still the third highest on record.