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Securities class actions rise slightly in 2018, NERA says

The number of securities class actions filed rose for the fourth consecutive year in 2018, according to a report released Tuesday by NERA Economic Consulting.

The year-over-year rise was slight, to 441 in 2018 from 434 in 2017, but still more than double the 218 in 2014. The 2018 filing rate is well above the post-Private Securities Litigation Reform Act of 1995 average of about 253 cases per year, and "solidifies a departure from the generally stable filing rate in the years following the 2008 financial crisis," the report said.

One main reason for the increase has been a jump 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 federal courts, said Stefan Boettrich, a NERA senior consultant, in an interview. There were 210 merger-objection filings in 2018, up slightly from the 204 in 2017, but much higher than the 92 in 2016 and 42 in 2015.

Aggregate investor losses in the 2018 filings were a record $939 billion, nearly four times the preceding five-year annual average. Most growth in investor losses "stemmed from cases alleging issues with accounting, earnings or firm performance, contrasting with prior years when most growth was tied to regulatory allegations," the report noted.

And although the number of publicly listed companies has dropped nearly 40% since the passage of the litigation reform to 5,350 companies, the overall risk of litigation to listed firms has increased substantially since early in the decade, according to the report, "Recent Trends in Securities Class Action Litigation: 2018 Full-Year Review." In 2018, the average probability of a listed firm being subject to such litigation was 8.2%, the same as 2017 and up from 3.5% in the 2013-2017 period.

In 2018, 351 securities class actions were resolved, while a motion to dismiss was filed in 95% of the ones tracked. However, the court reached a decision on only 77% of the motions filed. In the remaining 23% of cases, either the case was resolved before a decision was reached, plaintiffs voluntarily dismissed the action or the motion to dismiss was withdrawn by defendants, according to the report.