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Federal securities class actions spike in first half of 2017


There was a record number of federal class action securities fraud filings in the first half of 2017, says a report issued Tuesday by Cornerstone Research Inc. and the Stanford Law School Securities Class Action Clearinghouse.

The 226 class actions were a 48.7% increase over the comparable period in 2016, according to “Securities Class Action Filings 2017 Midyear Assessment,” a report issued by Boston-based Cornerstone and the Stanford, California, university.

It was also 135.4% above the 1997-2016 historical semiannual average of 96 filings, according to the report. The report said over the past 18 months, more securities fraud class actions have been filed in federal courts than in any equivalent period since enactment of the Private Securities Reform Act of 1995, which was intended to stem the filing of frivolous or unwarranted securities lawsuits.

“The record-setting pace of securities fraud litigation in equity market trading is causing record-setting head scratching among many analysts,” Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, said in a statement.

“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.

“But another part of the spike seems attributable to a decline in the quality of complaints filed by attorneys who have recalibrated their business strategies to pursue a portfolio of cases with more remote payoffs because the costs of building such a portfolio remain low.”

Among other data included in the report, “disclosure dollar loss,” which calculates investor losses at the time an alleged fraud is made public, increased to $74 billion in 2017’s first half, a 15.6% increase over the $64 billion reported in 2016’s first half, and 23.3% above the historical semiannual average of $60 billion.

The report also said federal filings of class actions involving merger and acquisition transactions increased in this year’s first half to 95 from 57 in the second half of 2016 and 28 in the first half of 2016.