11 August 2021

Stockholder Suits Are Fewer—and Smaller—in 1H 2021

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According to Cornerstone’s midyear report on federal and state securities class actions, new securities case filings have continued a substantial downward trend in the first half of 2021.

Plaintiffs filed 112 class action securities cases in the first half of 2021, down 25% from 150 in the second half of 2020 and 38% compared to the 182 cases filed in the first half of 2020, following a marked trend that has emerged since 2019.  That trend continues to be animated in large part by significant declines in M&A-related federal filings, which fell to just 12 during the period, a 66% reduction (or 83% relative to the semiannual average of 70 during the last five years). Also contributing to muted new filing activity is the continued low number of state 1933 Act filings following the Delaware Supreme Court’s ruling in Salzberg v. Sciabacucchi upholding federal forum provisions (as discussed here).  Cornerstone reports that the size of the new filings also contracted substantially, with measures designed to estimate aggregate investor losses falling by 50% or more.

As expected (in our previous post, here), new federal filings involving SPACs have continued to accelerate, to 14 in the first half of 2021 (or twice the number filed in the full year of 2020) — all of which involved alleged Section 10(b) violations.  The data suggest, however, that SPACs have not been a lightning rod for stockholder lawsuits.  Among the 166 SPAC merger transactions that have closed since the beginning of 2019, 23 have prompted a federal securities class action filing, a litigation rate of approximately 14%, which is roughly in line with the cumulative rate that public companies experience during the three years following an IPO.  For SPACs, such lawsuits have been filed a median of approximately 20 weeks after the closing date of the SPAC merger transaction.

To review the complete report:  https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2021-Midyear-Assessment