Global Corporate Exposure to Stock Drop Securities Class Actions Amounts to $133.2 billion in 3Q 2020

BETHESDA, Md., Oct. 9, 2020 /PRNewswire/ -- Exposure of directors and officers of U.S. issuers and non-U.S. issuers to stock-drop securities class action (SCA) lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, amounts to $133.2 billion in 3Q'20. U.S. SCA Rule 10b-5 Exposure of U.S. issuers amounts to $101.8 billion in 3Q'20, an increase of 126.7% relative to 2Q'20. ADR SCA Rule 10b-5 Exposure of non-U.S. issuers listed on U.S. exchanges that trade via American Depository Receipts (ADRs) amounts to $31.4 billion in 3Q'20, an increase of 285% relative to 2Q'20.

According to the SAR Securities Class Action (SCA) Rule 10b-5 Exposure Report – 3Q 2020, the U.S. SCA Rule 10b-5 Exposure Rate of U.S. issuers increased to 0.29% from 0.15% in 2Q'20, the highest exposure rate observed during the preceding four quarters. The U.S. SCA Rule 10b-5 Litigation Rate of U.S. issuers also increased to 1.16% from 1.04% in 2Q'20.

"For U.S. issuers, Rule 10b-5 exposure in 3Q increased by $57 billion to $102 billion, driven in large part by the SCA against Intel which accounts for 40% of U.S. exposure. However, even after discounting the Intel case, total U.S. SCA Rule 10b-5 Exposure increased 34% relative to 2Q. Non-U.S. issuers also exhibited a material increase of 285% in ADR SCA Rule 10b-5 exposure, or $23.2 billion, relative to 2Q," said Nessim Mezrahi, CEO of SAR.   

3Q 2020 Securities Class Action Landscape observations:

• 40 U.S. issuers were sued for alleged violations of Rule 10b-5. Based on the allegations presented in the first-filed SCA complaint against each defendant corporation, U.S. SCA Rule 10b-5 Exposure amounts to $101.8 billion. This is a notable increase of $57 billion, or 127% relative to 2Q'20.
• 15 U.S. large cap issuers were sued for alleged violations of Rule 10b-5. The Large Cap SCA Rule 10b-5 Exposure amounts to $93.7 billion, a material increase of $56.1 billion, or 149% relative to 2Q'20. The Large Cap SCA Rule 10b-5 Exposure Rate increased by 15 basis points to 0.29%. The Large Cap SCA Rule 10b-5 Litigation Rate increased to 1.81%, which is still below the rates exhibited in 1Q and 2Q of 2020.
• 7 U.S. mid cap issuers were sued for alleged violations of Rule 10b-5. The Mid Cap SCA Rule 10b-5 Exposure amounts to $2.7 billion, an increase of $742 million, or 37% relative to 2Q'20. The Mid Cap SCA Rule 10b-5 Exposure Rate increased slightly by 4 basis points to 0.20%. The Mid Cap SCA Rule 10b-5 Litigation Rate decreased to 1.17% in 3Q'20 from 1.29% in 2Q'20.
• 18 U.S. small cap issuers were sued for alleged violations of Rule 10b-5. The Small Cap SCA Rule 10b-5 Exposure amounts to $5.4 billion, a slight increase of about $106 million, or 2% relative to 2Q'20. The Small Cap SCA Rule 10b-5 Exposure Rate increased by 1 basis point in 3Q'20 to 0.80%. The Small Cap SCA Rule 10b-5 Litigation Rate increased to 0.89% in 3Q'20 from 0.85% in 2Q'20.
• 9 Non-U.S. issuers that trade via ADRs in the U.S. public markets were sued for alleged violations of Rule 10b-5. The ADR SCA Rule 10b-5 Exposure increased materially by $23.2 billion, or 285% relative to 2Q'20. The ADR SCA Rule 10b-5 Exposure Rate in 3Q'20 amounts to 0.12%, a material increase of 9 basis points relative to 2Q'20. The ADR SCA Rule 10b-5 Litigation Rate in 3Q'20 is 0.45%, 20 basis points higher relative to 2Q'20, and the highest recorded litigation rate against non-U.S. issuers in 2020.

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CONTACT: Carolina M. Doherty, VP of Business Development, [email protected], 202-436-9994

SOURCE SAR