The pace of securities class action filings for 2016 was the highest since the aftermath of the 2000 dot-com crash. In 2016, a total of 300 securities class actions were filed in federal courts, while 262 were resolved.
Filings continued to be concentrated in the Second and Ninth Circuits, where more cases were filed than in all other circuits combined.
For the first time since passage of the Private Securities Litigation Reform Act (PSLRA), more cases were dismissed than settled.
Half of the cases dismissed in 2016 were done so within about 11 months of filing, the fastest pace since passage of the PSLRA, and more than 35% lower than the five-year trailing average of 17 months.
Of the 5,000 federal securities class actions filed since the passage of the PSLRA, only 21 cases have gone to trial, and only 16 have reached a verdict or a judgment.
Growth in filings was dominated by federal merger objections, followed by various state court decisions restricting “disclosure-only” settlements.
The average settlement amount grew 36% in 2016, partially driven by settlements in two longstanding cases: Household International and Merck.
The securities class actions filed in 2016 involved approximately 5.2% of publicly traded companies. The average probability of a firm being targeted by a “standard” securities class action—one that alleges violations of Rule 10b-5, Section 11, and/or Section 12—was only 3.4% in 2016.
The record number of filings in 2016 was largely attributable to new merger-objection cases, which numbered 88. The jump likely stemmed from federal merger-objection suits that would have been filed in other jurisdictions but for various state-level decisions limiting “disclosure-only” settlements.
The number of cases filed against foreign issuers dropped in 2016, with the number of filings against Chinese-domiciled companies being especially pronounced.
In 2016, there were 20 filings alleging violations of Section 11, which is approximately equal to the average rate since 2010 though 23% lower than the rate of such filings in 2015.
In 2016, 28% of securities class action cases were brought against firms in the Health Technology and Services sector. Other than Finance sector filings between 2007 and 2009, filings have not been so concentrated in a single sector since at least 2005.
The percentage of 10b-5 class actions that also alleged insider sales decreased in 2016, dropping to 4% and marking a second consecutive record low.