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Class actions hit record in first half – report

Federal class-action lawsuits alleging securities fraud set a record in the first half of 2017, a report issued Tuesday by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse found.

The 226 securities fraud filings represent a 135% increase from a historical semiannual average of 96 filings since 1997, and a record number since enactment of the Private Securities Litigation Reform Act of 1995.

Traditional filings increased to 131 from 95 in the second half of 2016, while M&A-related filings rose to 95 from 57.

"If the litigation rate of traditional securities class actions in the second half of 2017 equals that of the first half, the annual rate will nearly double the historical average," said John Gould, senior vice president at Cornerstone Research. He added that M&A filings would more than double the historical average.

Joseph Grundfest, director of the clearinghouse and a professor at Stanford, said in a statement that the record-setting pace in equity market trading filings "is causing record-setting head-scratching among many analysts." He attributed part of the spike to a migration of merger claims to federal from state courts by plaintiffs "looking to avoid the experienced, skeptical judiciary in Delaware." Another factor could be a shift in strategy by plaintiffs' attorneys to pursue cases with more remote payoffs, he said.

Among other findings, individuals have been appointed lead plaintiff more often than institutional investors since 2013; between 2004 to 2012, institutional investors were as or more likely to be appointed as lead plaintiffs.

The report also found disclosure dollar loss — the dollar value change in a defendant firm's market capitalization before and after a class period is confirmed — in the first half of 2017 increased 23% to $74 billion, while maximum dollar loss — the dollar value change in the defendant firm's market cap from the highest point during the class period to after the class period — remained at $302 billion.

The report, Securities Class Action Filings—2017 Midyear Assessment, can be found on the Cornerstone website.