Securities class action suits proliferate: Report

The securities class action system is “spinning out of control,” with the number of lawsuits skyrocketing, says the U.S. Chamber of Commerce’s Institute for Legal Reform, in a report issued Tuesday.

More than 8% of public companies will be sued in a securities class action this year, estimates the study. Furthermore, the basis of these lawsuits has changed. A total of 85% of mergers and acquisitions deals valued at more than $100 million were the focus of a lawsuit last year, according to the report.

These lawsuits had previously been focused on Delaware state courts.  But because of a 2016 ruling, 87% of M&A lawsuits last year were filed in federal court, according to the report.

The study also discussed how a second variety of securities class actions have emerged that seeks to capitalize on adverse events in a company’s underlying business, such as product liability lawsuits, data breaches or similar high-profile, unexpected negative occurrences.

The report says, however, that courts are dismissing a greater number of cases, and those that are settled are done so typically at an amount equal to the cost of defending the lawsuit, although they cost investors millions in defense costs.