The number of securities fraud case filings in the first half of 2020 fell to its lowest level since 2016, but still remained above the historical average, according to a report by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse released Wednesday.
The report, "Securities Class Action Filings – 2020 Midyear Assessment," found that plaintiffs filed 182 new federal class actions in the first six months of the year, 18% fewer than the 221 filings in the second half of 2019, but well above the average of 112 cases filed since 1997.
Both core filings — those excluding merger and acquisition claims — and filings involving merger-and-acquisition transactions slowed, the report found. Core filings fell 13%, to 117 filings in the first half of the year from 134 in the second half of 2019, while merger-related filings declined 25% to 65 from 87 in the second half of 2019.
"The M&A litigation decline is easy to explain: COVID-19 depressed M&A activity, and without M&A activity, you can't have M&A litigation," said Joseph A. Grundfest, director of Stanford's Securities Class Action Clearinghouse, in a news release.
Sasha Aganin, a vice president at Cornerstone Research and one of the report's authors, said in the news release that it's not surprising, as the economic consequences of the COVID-19 pandemic became apparent, that many industries experienced significant declines in market capitalization in the first half of the year.
"A keen observer of new securities class-action filing activity may wonder why core filings related to stock-price drops declined rather than increased in the first half of 2020," he said. "The puzzle is not the number of filings in the first half of this year — this number was higher than at the height of the financial crisis in the second half of 2008. The puzzle is why there were so many filings in 2019 when financial markets were relatively calm and rising."
Allegations related to issuers' responses to the COVID-19 pandemic began in mid-March and 11 were filed in the first half of the year, according to the report.
Further, the report's Maximum Dollar Loss index showed a 48% increase to $584 billion in the first half of 2020 from $394 billion in the second half of 2019, due partially to market capitalization losses in a broad swath of industry sectors, the report said.
