SAR SECURITIES EXCHANGE ACT CLASS ACTION LITIGATION EXPOSURE REPORT – 4Q 2019 January 10, 2020
Securities Exchange Act Class Action Litigation Exposure of U.S. Public Corporations Decreased to $50.9B in 4Q’19 from $68.4B in 3Q’19i Aggregate U.S. Securities Class Action (SCA) Litigation Exposure of Public Corporations to Claims That Allege Violations of Rule 10b-5 under the Securities Exchange Act 37 U.S. corporations were sued for alleged violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 during 4Q’19.ii SCA litigation exposure for directors and officers of U.S. corporations to claims that allege violations of Rule 10b-5 under the Exchange Act amounts to $50.9 billion.iii Approximately $6.6 billion of market capitalization declines that have been claimed as investor losses by a
proposed class of common stock shareholders exhibit an absence of indirect stock price impact. Data and analyses indicate that claimed market capitalization losses related to alleged stock drops in 4Q’19 amounts to $57.5 billion. Aggregate U.S. SCA Exchange Act litigation exposure in 2019 amounted to $321.1 billion, after excluding alleged stock drops that do not surpass thresholds of indirect price impact.
Quarter
Rule 10b-5 Exchange Act Filings [1]
Corporate Exposure to Alleged Violations of Rule 10b-5 (000s) [2]
Aggregate Market Cap. of U.S. Listed Corps (000s) [3]
Rule 10b-5 Exposure % [4]
Rule 10b-5 Litigation Rate [5]
1Q’19
43
$66,638,137
$29,335,074,039
0.23%
1.17%
2Q’19
42
$135,139,282
$31,712,483,097
0.43%
1.15%
3Q’19
43
$68,368,425
$31,588,218,889
0.22%
1.16%
4Q’19
37
$50,941,875
$32,403,589,488
0.16%
1.06%
2019 Total:
165
$321,087,719
[1] First-identified SCA complaints that allege violations of Rule 10b-5. Excludes non-U.S. based corporations that trade through ADRs. [2] The market cap. losses of U.S. corporations listed as defendants in the sample of SCA complaints. The U.S. exposure presented here is adjusted to discount for market capitalization losses related to claimed stock price declines that exhibit an absence of price impact. [3] The aggregate market cap. of U.S. corporations’ common stock listed on the NYSE and NASDAQ. [4] The ratio of market cap. losses to the aggregate market cap. of U.S. corporations’ common stock listed on the NYSE and NASDAQ. [4] = [2] / [3] [5] = Number of defendant U.S. corporations divided by the total number of U.S.-domicled corporations that are listed on U.S. Exchanges.
In 4Q’19, aggregate exposure to Exchange Act SCAs by directors and officers of U.S. corporations was the lowest during 2019 – approximately 16 basis points of the aggregate market capitalization of U.S. corporations that are listed on U.S. Exchanges.iv During 2019, the average Rule 10b-5 Exposure Percentage amounted to 0.26%, or approximately one quarter of a percentage point of the aggregate market capitalization of U.S. corporations listed on U.S. Exchanges. During 2019, the average Rule 10b-5 Litigation Rate amounted to 1.13%. In 2019, SAR accounted for 233 Exchange Act SCAs against U.S. public corporations. After excluding SCA complaints that shared at least one alleged corrective disclosure against the same U.S. public corporation, SAR accounted for 165
Exchange Act claims in 2019. In 1Q, 2Q, 3Q, and 4Q of 2019, there were 43, 42, 43, and 37 respectively, individual U.S. corporations that were sued for alleged violations of the Exchange Act and Rule 10b-5. In 2019, SAR accounted for 436 alleged corrective disclosures claimed against directors and officers of U.S. corporations. After excluding SCA complaints that shared at least one alleged corrective disclosure against the same U.S. public corporation, SAR accounted for 276 alleged corrective disclosures claimed against directors and officers. In 1Q, 2Q, 3Q, and 4Q of 2019, shareholders have claimed that 74, 68, 65, and 69, respectively, corrective disclosures have allegedly caused damages to investors in common stock resulting from the corresponding stock price declines.