Class action security fraud suits were filed at a record clip in the first half of 2017, according to a new report by Cornerstone Research.
Researchers and legal observers alike see no one specific thing driving the increase. Rather, it's likely a combination of factors being led by the shift away from state court in Delaware to federal venues thanks to the 2016 In re Trulia Stockholder Litigation decision.
"Part of the spike is clearly attributable to the migration of merger claims from state to federal court by plaintiffs looking to avoid the experienced, skeptical judiciary in Delaware," Stanford Law School professor Joseph Grundfest, director of the Securities Class Action Clearinghouse, said in a statement.
In Trulia, the Delaware Court of Chancery made clear it would be increasingly vigilant in scrutinizing disclosure-only settlements in merger and acquisition suits. This has seen plaintiffs "flooding" federal courts with securities suits under Section 14, according to Wilmer Cutler Pickering Hale and Dorr partner Timothy Perla.
However, it could be as much an issue of these sorts of suits simply becoming more visible in federal court, where it's easier to track suits. Perla noted that M&A activity is up, but not at historic highs that would suggest the two were linked.
That there isn't a single identifiable issue has Perla and others looking at a host of possible factors.
Plaintiffs filed 226 new federal class action suits over the first six months, representing a 135 percent increase over the previous 10-year historical average, according to Cornerstone's research. This trend has continued since Trulia, with more federal actions initiated in the past 18 months than at any equivalent period since the enactment of the Private Securities Litigation Act in 1995.
The race to the courthouse has also accelerated, with an eight-day lag time from the end of the class period, which represented the fastest rate since the PSLRA was enacted.
Disclosure dollar loss rose to $74 billion during the first half of 2017, which was 23 percent above the historical semiannual average of $60 billion, the research firm said. However, maximum dollar loss actually dropped from an uptick in 2016 to $302 billion, which was on par with historical semiannual averages. Neither DDL nor MDL themselves were at historic levels, researchers said.
Beyond the venue shift, observers cited a number of forces at play. First, there were a large number of pharmaceutical suits a perennial target for securities suits, thanks to the volatile nature of their business model. Wilmer Hale's Perla said the growth of suits targeting the industry could be accounted for partially by the "roller coaster" it's recently faced. Before the election, pharma was a favorite target of politicians promising to hold the industry accountable, but has since seen investment return now that the "heat has let up," leading to new causes for securities litigation.