While the numbers may have been sagging at the mid-way mark of 2013, class action securities lawsuit filings climbed considerably in the second half of the year, up nearly 9 percent from the number of filings in 2012, says information released on Jan 28 by Cornerstone Research.
But while the numbers were up over the previous year, they’re still down in the grand scheme of things. At the third lowest filing rate in the last 15 years, there seems to be a continued trend towards a reduction of these types of class action suits. The Cornerstone report indicated that the settlement of lawsuits resulting from the financial crisis and Chinese reverse mergers cases were a large part of this trend.
The report also indicated that healthcare and biotechnology companies accounted for a larger portion of class action securities suits than previously, totaling 21 percent of last year’s 166 lawsuits. Lawsuits targeting the financial industry only account for 11 percent of those suits.
While the numbers may be coming down, a pending decision could push filings even lower in the coming months and years.
In a pending March hearing, the Supreme Court will weigh in on a case that could remove the precedents set in the Basic Inc. v Levinson in 1988. Basic made way for the use of the so-called “fraud on the market” presumptions. This precedent allows investors to claim they were defrauded by companies without having to show that they had relied on false or misleading statements when they made their investment decisions. Removal of this court precedent would make it considerably more difficult for investors to obtain class certification, since it would require each investor to show in what capacity they relied upon statements.
“A class is certifiable only if there are common questions affecting everyone in the same way, but that commonality may disappear if individual investors relied differently on alleged misrepresentations,” said John Donovan, a partner at Ropes & Gray in Boston, in an interview with Reuters.
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