[co-author: Rachel Ivanowsky]
Cornerstone Research, a top consulting and expert testimony firm, 2023 Summary Report, examines recent trends in securities class actions. The number of securities class action lawsuit filings increased slightly in 2023, after declining a few years ago, according to the report. Cornerstone's findings indicate a shift away from filing under Section 11 and the State Securities Act of 1933 (the 1933 Act), but not filing federal filings without Section 11 allegations (under the Securities Exchange Act of 1934). 10(b) claims)) are increasing more than ever before. Be prepared for its decline. While the technology and telecommunications industries remain the subject of securities class action lawsuits, lawsuits involving cryptocurrencies, COVID-19, and special acquisition companies (SPACs) have all declined.
Key case law in late 2023 reflects the limitations of the presumption of confidence when seeking grading. Looking ahead, the U.S. Supreme Court this year will consider whether investors can bring Section 10(b) claims based on alleged failures to make disclosures required under Regulation SK Section 303. Poised to resolve the circuit court divide, the decision could potentially place the burden on the U.S. Court of Appeals for the Second Circuit or expand it nationwide.
Section 10(b) Filings. 1933 Section 11 Applications Decrease
Overall, federal and state securities class actions rose from 208 claims in 2022 to 215 in 2023. Section 10(b)-only claims increased significantly, increasing by 26% compared to 2022. Meanwhile, claims under Section 11 and the state's 1933 Act plunged by 62. %. Of these Section 11 and 1933 state law claims, only two were filed exclusively in state court (down from 11 in 2022), and 84% were filed exclusively in federal court; The percentage is the highest in the last 10 years. Plaintiffs were also particularly slow to file Section 11 complaints, waiting an average of nearly a year and a half after an issuer's registration filing became effective, a 19% increase compared to 2022. , the longest since at least 2010.
Increase in securities transactions, especially in the 9th Circuit
In 2023, filings in the Third, Sixth, and Ninth Circuits increased, but filings in the Second Circuit decreased for the second consecutive year. The Ninth Circuit has the most securities class action claims (67); 32% Among all federal filings. The Ninth Circuit case also involved felons who: 56% It estimates the impact of all information revealed during the class period by measuring the change in the dollar value of the defendant company's market capitalization.
As cases of virtual currency, coronavirus infection, and SPACs decline, “banking chaos” cases emerge
Filings showed a trend away from cases related to cryptocurrencies, COVID-19, and SPACs. The 11 new lawsuits filed in the first half of 2023 suggested a sharp increase in crypto-related lawsuits, but crypto-related lawsuits remained flat at 14 throughout the year, reaching a peak in 2022. decreased by 39% compared to Half of the lawsuits filed concerned claims against virtual currency exchanges.
The number of COVID-19 related claims peaked in 2022 and fell by 50% in 2023, which was the lowest number of COVID-19 claims since 2020.
There will be limited initial public offerings of SPACs and operating companies in 2023, which also led to a decline in related filings. 2022 has already seen a significant 86% decline in SPAC IPOs from their 2021 peak. His SPAC IPO in 2023 was down another 64% compared to 2022. His IPOs of business companies in 2023 increased by 42% compared to 2022, but activity still decreased significantly compared to the annual average from 2002 to 2022. (less than half). Typically involving Section 11 and 1933 state law claims, this decline in IPO activity coincides with a sharp decline in these cases.
For cases filed before 2023, settlement and dismissal outcomes varied depending on the type of these cases. In 2020 and 2021, virtual currency applications had higher rejection rates compared to other federal applications, but in 2022 virtual currency applications were rejected at a lower rate than all other federal applications. It was one-sixth. The resolution rate for COVID-19-related cases since 2020 is about the same as for other federal cases, but early data shows that cases filed in 2022 have higher dismissal rates. ing. SPAC lawsuits in 2022 were rejected at a lower rate than other federal filings. However, the settlement rate for SPAC lawsuits was high.
Finally, an emerging trend is the emergence of claims related to what Cornerstone calls “2023 banking disruption,” with claims in the financial sector more than doubling compared to 2022. .
Decrease in mentions of short selling reports
Last year, the number of complaints about stock price declines related to short selling reports decreased by 17%. These incidents accounted for approximately 9% of all federal complaints. Only three plaintiff firms, Rosen Law Firm, Pomerantz, Glancy, Prongay & Murray, filed 74% of the lawsuits mentioning short sale reports, and these firms accounted for the largest share of federal filings in 2023. “Significantly higher'' than the percentage of respondents (54%).
High-tech sectors increasingly subject to applications, including “mega MDL applications”
In 2023, technology companies will[1] The possibility of becoming the subject of a securities class action lawsuit is increasing. Companies in the communications services, telecommunications and information technology sectors were 11.6% likely to be subject to a federal securities filing, the highest rate since 2018 (12.7%). Healthcare companies were a close second with a 10.9% chance.
Across all industries, the 2023 MDL index reached $3.2 trillion, the second highest on record, with 44 applications with an MDL of at least $10 billion. More than half of applications with MDLs of at least $10 billion (which Cornerstone refers to as “mega-MDL applications”) are for telecommunications, Internet, and media companies, and 20% of mega-MDL applications are for software and computer technology companies. It was against.[2]
Refutation of Reliance on Grade Certification and Pending Resolution in the Supreme Court
Cornerstone also highlighted three important securities class action decisions:
- The Second Circuit issued a decision decertifying the investor class. Arkansas Teachers Retirement System v. Goldman Sachs Group. – Explained in detail in this article Cooley Blog Posts for September 2023 In short, the court found that the defendants successfully rebutted the presumption of trust by showing that the alleged misrepresentations and subsequent corrective disclosures were not sufficiently connected.
- The United States District Court for the Southern District of Florida also refused to certify the proposed class. Regarding the January 2021 Short Squeeze Trading Litigation. The court categorically rejected plaintiffs' attempts to extend the presumption of reliance when the market for securities was volatile. Typically It was efficient, but “undoubtedly” inefficient during the putative class period.
- U.S. Supreme Court rules circuits likely to split over whether failure to make required disclosures under SK Rule 303 is sufficient to support securities fraud claims in the absence of misleading statements There is a possibility of solving the problem. Arguments will be heard in January 2024, and the Supreme Court's decision is expected later this year.
[1] Cornerstone Research analyzes S&P 500 companies across sectors based on the Global Industry Classification Standard (GICS) to determine the rate at which these companies are the subject of new securities class actions in federal court during each calendar year. ing. The “Communication Services/Telecommunications/Information Technology” category includes companies in television broadcasting, streaming, internet service providers, digital communications and storage, social media, and more.
[2] Cornerstone bases its sector classification on the Bloomberg Industry Classification System, which is different from GICS, for the purpose of evaluating mega-filing. The “Communications'' sector includes “Telecommunications, Internet, and Media,'' and the “Technology'' sector includes “Software and Computers.''
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