Global Corporate Exposure to Stock Drop Securities Class Actions Amounts to $177.1 billion in 4Q and $438.5 billion in 2020

News provided by

Jan 08, 2021, 01:08 ET

BETHESDA, Md., Jan. 8, 2021 /PRNewswire/ -- Exposure of directors and officers 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 $177.1 billion in 4Q'20. U.S. SCA Rule 10b-5 Exposure of U.S. issuers amounts to $97.8 billion in 4Q'20, a slight decrease of 4% relative to 3Q'20. ADR SCA Rule 10b-5 Exposure of non-U.S. issuers that trade via American Depository Receipts (ADRs) on U.S. exchanges amounts to $79.3 billion in 4Q'20, an increase of 153% relative to 3Q'20.

According to the SAR Securities Class Action (SCA) Rule 10b-5 Exposure Report – 4Q 2020, in 4Q'20 the U.S. SCA Rule 10b-5 Exposure Rate of U.S. issuers decreased to 0.25% from 0.29% in 3Q'20. The U.S. SCA Rule 10b-5 Litigation Rate decreased to 0.97% from 1.16% in 3Q'20, equating to a full-year litigation rate of 4.36% for U.S. issuers.

In 4Q'20 the ADR SCA Rule 10b-5 Exposure Rate of non-U.S. issuers increased materially to 0.27% from 0.12% in 3Q'20. The ADR SCA Rule 10b-5 Litigation Rate decreased to 0.35% from 0.45% in 3Q'20, equating to a full-year litigation rate of 1.35% for non-U.S. issuers.

"Global exposure of U.S. listed companies to Rule 10b-5 class action litigation increased by 33% in 4Q to $177 billion, even with the decrease in filing frequency. In 2020, 30% of $439 billion in global aggregate exposure stems from Exchange Act claims against non-U.S. issuers," said Nessim Mezrahi, CEO of SAR.

4Q 2020 Securities Class Action Landscape:

34 U.S. issuers were sued for alleged violations of Rule 10b-5. Based on allegations presented in the first-filed SCA complaint against each defendant corporation, U.S. SCA Rule 10b-5 Exposure amounts to $97.8 billion. Quarterly frequency declined by 15%, but exposure remained steady relative to 3Q'20.
17 U.S. large cap issuers were sued for alleged violations of Rule 10b-5. The Large Cap SCA Rule 10b-5 Exposure amounts to $93.2 billion, in-line with 3Q'20. The Large Cap SCA Rule 10b-5 Exposure Rate decreased by 4 basis points to 0.25%. The Large Cap SCA Rule 10b-5 Litigation Rate increased to 1.96% from 1.81% in 3Q'20, equating to a full-year litigation rate of 7.2%.
4 U.S. mid cap issuers were sued for alleged violations of Rule 10b-5. The Mid Cap SCA Rule 10b-5 Exposure amounts to $2.2 billion, a decrease of $594 million, or 22% relative to 3Q'20. The Mid Cap SCA Rule 10b-5 Exposure Rate decreased by 5 basis points to 0.15%. The Mid Cap SCA Rule 10b-5 Litigation Rate decreased to 0.65% from 1.17% in 3Q'20, equating to a full-year litigation rate of 4.2%.
13 U.S. small cap issuers were sued for alleged violations of Rule 10b-5. The Small Cap SCA Rule 10b-5 Exposure amounts to $2.4 billion, a material decrease of $2.9 billion, or 55% relative to 3Q'20. The Small Cap SCA Rule 10b-5 Exposure Rate decreased by 44 basis points to 0.36%. The Small Cap SCA Rule 10b-5 Litigation Rate decreased to 0.64% from 0.89% in 3Q'20, equating to a full-year litigation rate of 3.2%.
7 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 $48 billion, or 153% relative to 3Q'20. The ADR SCA Rule 10b-5 Exposure Rate amounts to 0.27%, a material increase of 15 basis points relative to 3Q'20. The ADR SCA Rule 10b-5 Litigation Rate decreased to 0.35%, 10 basis points lower relative to 3Q'20, equating to a full-year litigation rate of 1.4%.