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2014 Was Tough for Class Action Lawyers, Good for Investors: Report

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Plaintiffs may have filed nearly the same number of federal class action suits related to securities in 2014 as they did the previous year, but, as the Securities Class Action Filings – 2014 Year in Review notes, investor losses have dropped dramatically.

“It seems that 2014 was a tough year for plaintiff class action attorneys, but a good year for investors,” said Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse and a former SEC commissioner, in a statement

According to the report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse, the number of securities class actions filed by plaintiffs remained essentially flat year-over-year — plaintiffs filed 170 new federal class action securities cases in 2014, four more than in 2013 and 10% less than the historical average of 189 filings observed annually between 1997 and 2013.

But, according to the report, the size of filings measured by dollar losses decreased dramatically.

Investor losses at the time that an alleged fraud is disclosed, aka the Disclosure Dollar Loss (DDL) Index, decreased notably 45% from 2013 to 2014.  The total DDL in 2014 was $57 billion, 54% below the historical average of $124 billion.

The total Maximum Dollar Loss (MDL) for filings, a measure of the largest amount that plaintiffs might seek to recover, sank to its lowest level since 1997.  The total MDL in 2014 was $215 billion, or 66% below the historical annual average of $630 billion.

“Although the number of lawsuits filed is little changed, the cases filed are much smaller and will lead to smaller recoveries for the plaintiff class down the road,” Grundfest said in a statement. “These data raise an interesting question as to whether large-scale securities class actions against corporate America are on the decline. Only time will tell.”

John Gould, senior vice president of Cornerstone Research, points out another notable finding regarding investor losses from this year’s report.

“For the first time since 1997, there were no mega filings with investor losses of greater than $5 billion at disclosure,” said Gould, in a statement. “In addition, there were only two mega filings with a maximum dollar loss over the class period of $10 billion or more, and both were in the oil and gas industry. Overall, class actions against energy companies spiked as energy prices dropped toward the end of the year.”

According to the report, there were six class actions filed against energy companies in the fourth quarter of 2014, as oil and gas prices slumped.

The report also notes that it was a good year for companies in the S&P 500.

Companies in that index were less likely to be targeted by a securities class action than in any year since 2000, the first year that was measured, according to the report. The report states that about one in 45 of these companies was a defendant in a class action during the year, compared with the historical average of approximately one in 17.

Another notable departure from the report’s historical experiences is that the S&P 500 companies with the largest market capitalizations were less likely to be the subject of a class action filing than were smaller firms.

The report states that only 1.3% of S&P 500 market capitalization was subject to new filings in 2014, compared with the historical average of 10.1%. 

Other notable trends from the report:

— The number of companies listed on U.S. exchanges increased recently after a 15-year decline. IPOs increased 31% over the previous year. 

— The likelihood that a public company was the subject of a filing remained above the historical average, continuing a five-year trend. In 2014, approximately one in 28 companies listed on U.S. exchanges was the subject of a class action.

— Filings increasingly targeted firms in the pharmaceutical and biotechnology industries.

— Dismissals of securities class actions continued to increase for recent years, with dismissal rates at 59% and 58% of cases filed in 2010 and 2011, respectively. Cases filed in 2012 appear to be on a similar path. There is no clear explanation for this trend, the report says — it may have to do with changing legal philosophies or with the filings themselves.

— The percentage of filings against foreign issuers increased in 2014 for the first time in three years, with a distinct increase in suits against firms headquartered in Europe.

— Ninety-four percent of cases alleged misrepresentations in financial documents; 47% alleged false forward-looking statements; and 36% alleged GAAP accounting violations. Sixteen percent of cases alleged insider trading.

—Check out Securities Class-Action Awards Jumped 46% in 2013 to read more about last year’s findings.


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