While the past year, or even eighteen months, was short on landmark federal securities law decisions, there was significant activity on the part of private securities litigants. In 2018, plaintiffs filed 403 new federal securities fraud class actions, just short of 2017’s record high of 412. This continued a marked uptick in securities filings over the last two years. After 20 years with an average of only 203 new filings per year, the pace has now nearly doubled. This increase was driven in part by the emergence of securities cases relating to mergers and acquisitions. As few as 13 such cases were filed per year in the early 2010s, but 198 were filed in 2017 and 182 in 2018.
So far in 2019, there have been 134 securities class actions filed, signaling that the trend is continuing. This increase may have resulted at least in part from decisions by the Delaware Court of Chancery severely restricting the ability of stockholders to resolve breach of fiduciary duty claims against directors in the M&A context with non-monetary settlements whereby the company makes supplemental disclosure, pays the plaintiff’s attorney a fee, and defendants receive class-wide releases. Given that this avenue for quick resolution of M&A litigation is now effectively foreclosed in the absence of clearly material supplemental disclosure, it appears that certain stockholders have migrated to federal court asserting federal securities law claims instead.
At the same time, the lower federal courts have been prolific in issuing opinions on a range of important issues affecting private securities litigants. In the process, courts attempted to mediate between their perception that private lawsuits are necessary to protect investors and promote ethical business practices while also recognizing the significant potential for abuse in this area, including the filing of meritless lawyer-driven suits.
Source: Review and Predictions: 2019 Federal Securities Litigation and Regulation