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 Plaintiffs filed 166 federal securities lawsuits seeking
class-action status in 2013, up 9 percent from 152 in 2012,
according to data released Tuesday by Cornerstone Research and the
Stanford Law School Securities Class Action Clearinghouse.
Filings nonetheless were the third fewest over the last 15 years.
The study attributed this in part to fewer lawsuits over the
financial crisis, mergers and Chinese reverse mergers, and to a drop
in potential targets with the number of U.S.-listed companies having
slid by nearly half since the late 1990s.
The Supreme Court, in a case involving Halliburton Co <HAL.N> to be
argued on March 5, could accelerate that decline as it reexamines a
1988 precedent that made it easier to pursue class actions against
companies.
In that decision, Basic Inc v. Levinson, the court let shareholders
who claimed they were defrauded by false statements in securities
filings rely on a "fraud on the market" presumption that stock
prices reflected those false statements, and not have to show they
relied on actual filings.
A narrowing or overruling of Basic could have "seismic"
implications, said Joseph Grundfest, a Stanford law professor who
works with Cornerstone and a former commissioner of the U.S.
Securities and Exchange Commission, in an interview.
"If the court heightens the showing that plaintiffs must make to
establish reliance, then all bets are off," Grundfest said. "It
could become impractical to certify a large number of class actions,
because it would require a showing that each individual member of
the class relied on misrepresentations."
The Supreme Court is expected to rule before July.
Last term, it voted 6-3 to let Amgen Inc <AMGN.O> shareholders sue
as a group without first showing that alleged misstatements were
material.
But four justices expressed discomfort with Basic, and the court has
in other cases cut back on class actions were plaintiffs' claims
were dissimilar. Further cutbacks could make it harder for small
investors to pursue claims in court.
"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. He said one option is for the Supreme Court to require investors to
prove that misrepresentations had an actual effect on a stock's
price.
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SETTLEMENT TOTALS RISE
According to Cornerstone, healthcare and biotechnology companies
accounted for 21 percent of last year's 166 lawsuits.
Financial companies accounted for just 11 percent, and for the first
time in 14 years no targets were in the Standard & Poor's 500.
Thirty lawsuits targeted foreign issuers, down from 32 in 2012. And
a mere 13 challenged mergers and acquisitions, though that number
excludes state court class actions and "derivative" actions filed
against officers and directors.
Investors challenge "well over" 80 percent of mergers and
acquisitions in court, even when shareholders of takeover targets
receive big premiums, the law firm Gibson, Dunn & Crutcher said in a
report last week.
Earlier this month, NERA Economic Consulting said federal courts in
2013 approved $6.5 billion of settlements, up from $3.3 billion in
2012.
The largest settlement to win approval in 2013 was Bank of America
Corp's <BAC.N> $2.43 billion settlement of claims over its January
2009 purchase of Merrill Lynch & Co.
That payout was less than half the record $7.24 billion related to
Enron Corp in 2006, and $6.19 billion related to WorldCom Inc in
2005.
Grundfest said such settlements could become harder to come by if
the Supreme Court narrowed or overruled Basic. "There would be a
very large push by plaintiffs' lawyers and perhaps even the SEC to
have something done in Congress," he said.
(Reporting by Jonathan Stempel in New
York; editing by David Gregorio)
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