Recent studies by PricewaterhouseCoopers, NERA Economic Consulting, Cornerstone, and Kevin LaCroix of D&O Diary have all found that federal securities class actions are on the rise. According to PwC, the data shows a trend towards more cases filed against smaller companies, especially for claims regarding accounting irregularities. Smaller companies also face a significant risk of claims regarding inadequate internal controls over financial reporting, likely due to their smaller size and more limited resources.
NERA found that standard federal securities class actions – complaints alleging violations of Rule 10b-5, Section 11, or Section 12 – increased for the third straight year. Both PwC and NERA determined that the number and proportion of federal cases challenging mergers and acquisitions also increased in 2015. It is unclear whether this is a result of Delaware’s increased scrutiny of merger litigation settlements, but we will monitor this trend, which also affects merger litigation in state courts, including the North Carolina Business Court.
Cornerstone analyzed the timing and progress of cases and found that the time to resolution appears to be increasing. Fewer cases were dismissed within the first year after they were filed, and the percentage of cases settled within three years also decreased. Despite this, only a small proportion of cases – just 26% — made it to a motion for class certification. The other 74% of cases were dismissed or resolved prior to class certification. When courts actually decided class certification motions, they granted them 75% of the time.
The studies were not consistent in identifying the number of cases filed in the Fourth Circuit, but all agreed that filings here are well behind those filed in the Second and Ninth Circuits, which saw more than 60% of securities class action filings. Although the Fourth Circuit did not see as much volume as these courts, one of the 10 largest settlements of 2015, a $146.3 million settlement of misrepresentation claims against an energy company, took place in the Western District of North Carolina.