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Securities class actions continued growing in 2017 – NERA report

Updated with correction.

The number of securities class actions filed in 2017 reached a record rate of growth for the third year in a row, according to a report released Monday by NERA Economic Consulting.

Aggregate investor losses of $334 billion in those filings were 50% higher in 2017 than the five-year average. Since 2015, filings with investor losses between $1 billion and $5 billion have tripled, according to the report, "Recent Trends in Securities Class Action Litigation: 2017 Full-Year Review."

For both 2016 and 2017, the high level of investor losses was caused by the number and size of cases alleging a failure to disclose a regulatory issue.

Filings of securities class actions averaged more than one per day, driven by an increase in merger objections. Part of the growth was due to a record number of filings moving from Delaware courts, which have discouraged merger-objection cases, to other federal courts, said NERA Economic Consulting managing director David Tabak in an interview. In 2017, there were 785 pending cases in the federal system, a 12% increase from 2016 and 41% jump from 2011.

"But part of it is still growth in the number of filings," Mr. Tabak said. The 432 federal securities class actions filed in 2017 represent the highest rate of growth in number of cases since passage of the Private Securities Litigation Reform Act of 1995, except for 2001.

Even as the number of listed companies continues to drop, the average number of securities class action filings over the past five years is still higher than the average filing rate of about 216 over the first five years after the litigation reform act went into effect. That raises the average probability of a listed firm being subject to such litigation to 8.2% in 2017, up from 3.2% for the 2000–2002 period.

The report also found a record rate of case resolution, with a 40% increase in case dismissals and 30% increase in settlements. The aggregate value of settlements dropped because of a dearth of large settlements, Mr. Tabak said. Only 15% of the securities class actions filed reached a decision on the motion for class certification, while most were settled or dismissed beforehand.

The number of filings against foreign companies in standard securities class actions increased for the fourth consecutive year, making up more than a quarter of all standard filings in 2017.