The pace of federal securities class actions continued at near-record levels in 2018, according to a report issued today by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse. Core filings increased for the fifth consecutive year, while a slight decrease in the number of federal filings related to mergers and acquisitions caused a minor decline from 2017’s record total.

The report, Securities Class Action Filings—2018 Year in Review, shows that plaintiffs filed a total of 403 securities class actions in 2018 compared to 412 in 2017. The number of core filings increased from 214 to 221—the highest level since 2008, when securities class actions surged due to volatility in U.S. and global financial markets. Federal M&A filing volume was the second-highest on record, despite declining from 198 to 182.

Securities class action filings related to stock price drops reached levels not seen since the peak of the financial crisis, with the annual likelihood of such filings against exchange-listed companies at an all-time high.

A long-term decrease in the number of companies listed on major U.S. exchanges contributed to greater litigation risk. In 2018, the likelihood that a listed company would be targeted in a core filing was greater than in any previous year. In addition, one in about 11 S&P 500 companies (9.4 percent) was sued in 2018.

The frequency of filings involving larger companies combined with the high number of filings overall pushed market capitalization losses in dispute to more than $1 trillion. Aggregate market capitalization losses at the ends of class periods were a record-setting $330 billion. 

Combined federal Section 11 and state 1933 Act claims in state courts also peaked in 2018. “Section 11 claims, based on the Securities Act of 1933, are increasing in state court filings after the U.S. Supreme Court’s Cyan ruling in March of last year,” said Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “For example, we saw no 1933 Act filings in New York in 2017. In 2018, we saw 13 of these cases—all filed after the Court’s ruling.”

Key Trends

• The number of mega Maximum Dollar Loss filings (MDL of at least $10 billion) and mega Disclosure Dollar Loss filings (DDL of at least $5 billion) increased dramatically in 2018.
• Core filings against non-U.S. companies fell for the first time since 2013.
• Core filings against biotechnology, pharmaceutical, and healthcare companies declined from 66 in 2017 to 56 in 2018, yet remained above historical averages.
• Core filings against Technology and Communications sector filings increased.
• Ninth Circuit core filings reached historic levels.
• Plaintiffs filed nine lawsuits related to initial coin offerings or cryptocurrency in 2018, up from five in 2017. However, eight were filed in the first half of 2018 and only one in the second half, as ICO markets began to cool in 2018.

Cyan Inc. v. Beaver County Employees Retirement Fund

In March 2018, the U.S. Supreme Court issued a unanimous opinion allowing plaintiffs to assert claims under the Securities Act of 1933 (1933 Act) in state courts. Under the 1933 Act, Section 11 allows investors to pursue damages for alleged misrepresentations or omissions in securities registration statements. It is generally believed that the ruling will lead to more securities class action filings in state courts based on this claim.

Read the full report from Cornerstone Research on Securities Class Action Filings 2018 Year in Review.