Global Corporate Exposure to Stock Drop Securities Class Actions Amounts to $53.1 billion in 2Q 2020

News provided by

Jul 10, 2020, 07:10 ET

BETHESDA, Md., July 10, 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 $53.1 billion in 2Q'20. U.S. SCA Rule 10b-5 Exposure of U.S. issuers amounts to $45 billion in 2Q'20, a decrease of 29.3% relative to 1Q'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 $8.1 billion in 2Q'20, a decrease of 30.3% relative to 1Q'20.

According to the SAR Securities Class Action (SCA) Rule 10b-5 Exposure Report – 2Q 2020, the U.S. SCA Rule 10b-5 Exposure Rate of U.S. issuers decreased to 0.15% from 0.21% in 1Q'20, the lowest stock-drop exposure rate observed during the preceding four quarters. The U.S. SCA Rule 10b-5 Litigation Rate of U.S. issuers also declined to 1.04% from 1.19% in 1Q'20.

"The decline in stock-drop filings during the second quarter led to a 29% reduction in alleged shareholder losses. 2Q exhibited the lowest amount of potential class-wide damages since SAR began analyzing Rule 10b-5 exposure with event study analysis. 66% of this past quarter's U.S. SCA Rule 10b-5 exposure, or about $30 billion in market cap losses, stems from stock-drop lawsuits filed against publicly traded financial institutions," said Nessim Mezrahi, CEO of SAR.

2Q 2020 Securities Class Action landscape observations:

35 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 $45 billion. This is a notable decrease of $18.6 billion, or 29.3% relative to 1Q'20.
9 U.S. large cap issuers were sued for alleged violations of Rule 10b-5. The Large Cap SCA Rule 10b-5 Exposure amounts to $37.6 billion, a notable decrease of $17.3 billion, or 31.5% relative to 1Q'20. The Large Cap SCA Rule 10b-5 Exposure Rate decreased by 6 basis points to 0.14%. The Large Cap SCA Rule 10b-5 Litigation Rate decreased to 1.45%, which is the lowest it has been during the preceding four quarters.
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 billion, a notable decrease of $3.3 billion, or 62.1% relative to 1Q'20. The Mid Cap SCA Rule 10b-5 Exposure Rate decreased by a material 43 basis points to 0.16%. The Mid Cap SCA Rule 10b-5 Litigation Rate increased to 1.29% in 2Q'20 from 1.12% in 1Q'20, due to a lower number of U.S.-listed mid cap entities.
19 U.S. small cap issuers were sued for alleged violations of Rule 10b-5. The Small Cap SCA Rule 10b-5 Exposure amounts to $5.3 billion, a notable increase of $2 billion, or 61.8% relative to 1Q'20. The Small Cap SCA Rule 10b-5 Exposure Rate increased by 30 basis points in 2Q'20 to 0.79%. The Small Cap SCA Rule 10b-5 Litigation Rate increased to 0.85% in 2Q'20 from 0.83% in 1Q'20.
5 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 decreased by $3.5 billion, or 30.3%, in 2Q'20 to $8.1 billion. The ADR SCA Rule 10b-5 Exposure Rate in 2Q'20 amounts to 0.03%. The ADR SCA Rule 10b-5 Litigation Rate in 2Q'20 is 0.25%, 5 basis point lower relative to 1Q'20.