US Securities Class Actions Bulletin - H1 2022
Core class action activity keeping pace with historic trends…
For the first half of 2022, the downward trend in the number of US securities class action filings continued, in line with the previous year, with 107 separate actions recorded, including 17 filings against non-US domiciled entities, or foreign filers, which equates to 18.9% of the total. Projecting the half year total to the end of the year would suggest a 2022 run rate of 34 cases, aligning with the 2012-2016 average but sitting below some of the more elevated case numbers of recent years. Previous years indicate that there is sometimes an increase in securities class action litigation activity in the second half of the year.
As with prior periods, the first half of 2022 saw class action filings emanating from a widespread geographical pool, with a slight increase in actions being made against European companies. Notably, the most populous industries affecting foreign filers, were the services, financial and technology sectors.
While acknowledging that filings sit below the peak levels recorded between 2017 and 2019, it could prove extremely jeopardous for the directors and officers of non-domiciled, US-listed companies to believe that the worst has passed in respect of securities class action litigation and that their relevance has become less important in the board room.
Despite recent declines in the number of suits being filed, the duration of cases continues to lengthen and inflationary effects are setting in, resulting in increasing trends in both settlement valuations and costs to defend these suits.
As our FY 2021 and Q1 2022 bulletin shows, the risks companies face continue to evolve. Litigation related to cryptocurrency, data breaches, cannabis and the opioid crisis have increased as cases citing IPO allocation, the credit crisis, analyst malpractice, option backdating and bid-rigging have declined.
The first half of 2022 also saw an increased rate of securities class action filings made against entities with globally recognized brand names. High profile companies with significant exposure to reputational damage through litigation will, undoubtedly, be a preferable target for plaintiff’s lawyers, who expect the heightened exposure to bring about a quicker settlement, albeit with a higher financial burden for the defendant.
A further threat that foreign filers in the US face as they navigate the traditional litigation minefield is exposure to new forms of event-driven actions, emanating from landmark occurrences such as the recent Special Purpose Acquisition Company (SPAC) bubble. SPAC-related litigation continues to trend sharply upward in the US, despite a drop in the number of individual SPAC IPOs taking place. The existence of more than 500 listed SPACs currently seeking an acquisition target with pre-agreed target deadlines looming creates even further redemption and settlement risk for those SPACs who are ultimately not successful.
Directors and officers continue to encounter significant headwinds in the boardroom. As well as the risks outlined above, shareholders are closely scrutinizing corporate governance in relation to issues such as Environmental, Social and Governance (ESG) and will hold companies accountable for undertakings made towards reducing their carbon footprint or ensuring a revaluation of gender pay disparities. These scenarios, set against a backdrop of economic uncertainty, with a looming financial recession on the horizon, alongside continued geo-political instability across the globe, will undoubtedly challenge companies and could well lead to an increase in securities class action litigation.
AIG’s Financial Lines claims team brings decades of global experience and expertise in assisting its international clients in the defense and settlement of Directors and Officers securities class action claims, providing insight and support when our insureds need it most.
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