The Securities and Exchange Commission, Congress and the courts should all take steps to curb the growing rate of securities litigation, the U.S. Chamber Institute for Legal Reform will propose Tuesday at an event in Washington.
"Cases are at record high levels; the likelihood that a public company will be sued has never been greater; the system is plagued by M&A claims that exhibit every characteristic of classic litigation abuse; and event-driven claims are increasingly used to coerce unjustified settlements," summarizes a report to be presented at the event.
The report, "Containing the Contagion," notes that a record level of securities litigation is being driven by "professional plaintiffs," including those affiliated with some pension funds, and plaintiffs' lawyers. Reforms enacted in 1995 with passage of the Private Securities Litigation Reform Act "have not been fully successful." In 2018, the number of securities filings set a new record, while litigation and settlement costs were nearly triple those of the previous decade, the report said.
One area for growth is more parallel securities litigation in state courts, following the Supreme Court's March 2018 ruling in Cyan Inc. vs. Beaver County Employees Retirement Fund allowing plaintiffs to assert claims under the Securities Act of 1933 in state courts, which are less likely to dismiss such lawsuits, the report said. Companies conducting initial public offerings in particular "now face a measurably more significant risk of getting hit with a securities lawsuit," it added.
Also increasing in 2018 were investor filings for damages for alleged misrepresentations or omissions in securities registration statements, while merger and acquisition cases "continue to be filed in federal court at a breathtaking rate," according to the report, which said that claims often lead to settlements that provide fees to lawyers but only "meaningless disclosure" to investors.
The group is calling on the SEC to undertake a project to study litigation trends and to file more amicus briefs highlighting the potential for abuses. Courts could do more to spot abusive litigation trends, and Congress should enact statutory changes, including overturning the Cyan decision, the report said.