Securities class-action suits decline again as market volatility eases

Federal securities fraud class-action lawsuits filed in the first half of this year totaled 85, down 8% from 92 cases in the second half of last year but up 9% from the 78 cases in the first half of 2014, said a report by Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse.
S&P 500 companies accounted for four of the filings in the first half of this year, down from five in the second half of 2014 and six in the first half of 2014, according to numbers from John Gould, senior vice president at Cornerstone. The four filings in 2015 represent an annualized rate of 1.6%, or eight filings at S&P 500 companies, the lowest rate since Stanford and Cornerstone began tracking the S&P 500 metric in 2001. By contrast, the annual average number of filings at S&P 500 companies from 2001 through 2014 was 27.5, representing a 5.5% annualized rate.
Overall, the 85 filings represent a 10% decline from the study’s semiannual average of 94 filings since inception in 1997.
In the first half of the year, 65 of the filings were against U.S.-based companies and 20 against non-U.S. companies, said the report. By comparison, in all of 2014, 136 filings were against U.S. companies and 34 against non-U.S. companies.
VOLATILITY DOWN
Generally, “the numbers are down and continue to be down over the last few years,” Mr. Gould said in an interview. “And a smaller amount of market cap is affected” by filings in 2015 than in recent previous years.
In 2015, an annualized 2.5% of the S&P 500 market capitalization was subject to a new filing, the second lowest level after the 1.3% last year and down from the 9.1% annualized average from 2001 through 2014.
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“It’s tough to say if there is less fraud in the market,” Mr. Gould said of the general decline found in the report.
Market “volatility has been lower the last few years,” Mr. Gould said. “We’ve seen a correlation between higher volatility and more filings.”
For the first six months of 2015, a total of $105 billion of defendant companies’ market value was lost from the trading day with the highest market capitalization during the class-action period to the trading day immediately following the end of the class-action period, the report said. By contrast, the loss was $123 billion in the second half of 2014 and $93 billion in the first half of 2014. The 2015 loss is down 35% from the $304 billion semiannual average loss from 1997 through 2014.
Barry B. Burr is a reporter at sister publication Pensions & Investments.