Securities Class Action Exposure in 2023 Almost Triples the Amount Exhibited During Second Half of 2022

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Jul 10, 2023, 07:10 ET

BETHESDA, Md., July 10, 2023 /PRNewswire/ -- Exposure of U.S.-listed companies to 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 $321 billion during the first half of 2023 – an increase of 176% relative to the second half of 2022. SAR's independent application of event study analysis to quantify claim-specific exposure by testing stock price impact of the Defendant companies has enhanced our clients' estimates of loss severity, allowing them to limit unfavorable loss reserve developments.

"Despite a relatively modest uptick in filing frequency, the increase in securities class action exposure together with the accumulation in SCA loss severity during the first half of the year, may prompt underwriters to evaluate the price adequacy of certain D&O insurance programs. Plaintiffs' alleged market capitalization losses per Rule 10b-5 claim against U.S. issuers have doubled in 2023 relative to the second half of 2022," said Nessim Mezrahi, CEO of SAR.

According to a report released today by SAR, during the first half of 2023, U.S. SCA Rule 10b-5 Exposure of U.S. issuers amounts to $305 billion, an increase of approximately 181% relative to the second half of 2022. ADR SCA Rule 10b-5 Exposure of non-U.S. issuers that trade via American Depositary Receipts (ADRs) on U.S. exchanges amounts to $16 billion for the salient period, an increase of approximately 107%.

Considerably greater SCA Rule 10b-5 Exposure relative to the number of securities claims filed has resulted in the average exposure per claim to more than double against U.S. Issuers in 2023. Data and analyses indicate that the average SCA Rule 10b-5 exposure per filing exhibited a remarkable increase from $2 billion in the latter half of 2022 to $4.2 billion during the first half of 2023. The average ADR SCA Rule 10b-5 Exposure per claim for ADR's has only increased by a relatively modest amount of 3.5%.

Key Trends Based on Rule 10b-5 Securities Class Actions Analyzed During First Half of 2023:

Data and analyses indicate that the preceding two quarters exhibited an unremarkable increase in filing frequency, but securities class action exposure and implied loss severity is close to triple the amount exhibited during the second half of 2022.
73 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 $305 billion. U.S. SCA Rule 10b-5 Exposure nearly tripled relative to the latter half of 2022.
34 U.S. Large Caps were sued for alleged violations of Rule 10b-5. The U.S. Large Cap SCA Rule 10b-5 Exposure amounts to $291.7 billion, which is nearly triple relative to the latter half of 2022.
17 U.S. Mid Caps were sued for alleged violations of Rule 10b-5. The U.S. Mid Cap SCA Rule 10b-5 Exposure amounts to $6.2 billion, which increased 12% relative to the latter half of 2022.
22 U.S. Small Caps were sued for alleged violations of Rule 10b-5. The U.S. Small Cap SCA Rule 10b-5 Exposure amounts to $7.2 billion, which increased 70% relative to the latter half of 2022.
12 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 by $8.2 billion to $16 billion, or 107% relative the latter half of 2022.