Securities Class Action Filings 2022
Cornerstone Research published its review of security class actions for 2022, illuminating key trends for the year (here). The number of actions filed year is, perhaps, the most closely watched number. For 2022 the number of securities class actions declined slightly compared to the prior year. Last year 208 securities class actions were initiated, compared to the 218 in 2021. While the change is small, the more important metric is the decline – the fact that the number of cases initiated declined by 5%.
The downward trend in the number of cases filed, mirrors that in other areas. For example, the number of filings of M&A class actions also declined. The decline there was much sharper – 61% compared to the prior year.
Similarly, the percentage of U.S. exchange listed companies named in a securities class action fell for the third straight year in 2022. In that year it fell to 3.1%, its lowest percentage since 2012. That decrease is mitigated, however, since there was a 21% increase in U.S. exchange listed firms at the beginning of 2022 relative to 2021. Many of the new issuers, however, were SPACs that had not announced a de-SPAC transaction.
In contrast, the filing of actions related to cryptocurrency significantly increased compared to the prior year. At the same time, the number of those cases dismissed typically exceeds that of others. For example, during the period 2018 – 2019 56% of cases involving crypto were dismissed compared to 53% of other actions; in 2020 69% of those involving crypto were dismissed compared to 48% of the other cases; and in 2021 27% were dismissed compared to just 21% of other actions.
The most prevalent claim in securities class actions is misrepresentations made in financial documents, according to the Report. Indeed, in each year, starting in 2018 and continuing to last year at least 90% or more of the actions filed claimed were based on claimed misrepresentations in financial documents. The only exception was 2022 during which the number of cases containing such an allegation was 89% of those filed. During the same period the second most alleged claim was false forward looking statement, an claim made in over 40% of the cases. Again, however, the sole exception was 2022 when percentage fell to 39. Finally, accounting violations were the third most popular allegation, appearing in over 20% of the cases during the same period.
Finally, the largest number of securities class actions were filed in the Second Circuit Court of Appeals in 2022. The same is true for 2021. In 2020, however, the Ninth Circuit edged out the Second Circuit by one filing – 77 for the former and 76 for the latter.