Plaintiffs filed 300 securities class actions in 2016 — a mark much higher than the annual average of 221 from 2011 to 2015. The number of filings in 2016 was the second-highest filing total in 15 years.
While the change in administration is unlikely to have an immediate effect on private securities class actions, if policy proposals result in an increase in the number of IPOs, plaintiffs may have the opportunity to bring more actions.
Given the number of U.S.-listed companies has declined by more than 3,000 since 1997, public companies today are more susceptible to being the target of a securities fraud claim than at any other time.
Various factors likely account for the increased number of filings. Among them, the decline in financial crisis cases has freed the resources of the plaintiffs’ bar to focus on nonfinancial institutions and to target more traditional corporate stock-drop cases.
Further, it is common for securities fraud suits to follow the disclosure of any corporate crisis, including environmental, antitrust, Foreign Corrupt Practices Act (FCPA) or other regulatory issues. The rise in post-crisis disclosure lawsuits (particularly those that follow FCPA investigations) is evident in the increased number of suits brought against foreign issuers, including from Brazil and Asia.
There has also been a rise in accounting and restatement allegations, including actions brought against foreign issuers. The rise in securities cases brought in federal court also may be linked to the reluctance of courts in Delaware to sanction merger settlements following the Delaware Court of Chancery’s January 2016 Trulia decision.
A number of significant decisions in securities litigation are expected in 2017, especially in the area of class certification.
In Petrobras, the court will determine, among other factors, whether the individualized need to determine if a transaction was “domestic” renders the class unascertainable and not appropriate for class certification.
The Second Circuit is expected to issue three decisions relating to the determination of market efficiency at the class certification stage. These decisions will touch upon who bears the burden of proof and what level of evidentiary support is necessary at the class certification stage to trigger the rebuttable presumption of reliance based on the fraud-on-the-market theory.
Other issues to be put before the court in 2017 include further clarification of Item 303 trend disclosure as the basis for a securities class action, loss causation and the price maintenance theory, and the delineation of statutes of repose and tolling.