Securities Litigation Exposure Increases During Record-Breaking Stock Market

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Jul 10, 2024, 07:10 ET

BETHESDA, Md., July 10, 2024 /PRNewswire/ -- SAR, a data analytics company specializing in securities litigation risk management solutions, today published the SCA Rule 10b-5 Exposure Report for 2Q 2024. According to the report, in 2024 investor plaintiffs alleged approximately $284.9 billion in market capitalization losses against directors and officers for allegedly violating the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. This is an increase of 14.03% relative to the second half of 2023. During the past six months, investor plaintiffs claimed approximately $3.03 billion in market capitalization losses per private Rule 10b-5 securities class action and approximately $1.72 billion per alleged stock drop against defendant issuers. Both securities litigation metrics increased by 9.2% and 25%, respectively, relative to the second half of 2023.

"Under record U.S. equity market capitalizations, defendants in securities class actions filed in 2024 are facing an increase in the magnitude of stock drops that investor plaintiffs claim to be fraud-related," said Nessim Mezrahi, CEO of SAR.

Rule 10b-5 Private Securities-Fraud Litigation Trends between 2H 2023 and 1H 2024:

U.S. issuer defendants face an increase of $35.1 billion in alleged market capitalization losses, amounting to $3.12 billion per Rule 10b-5 securities class action. Alleged market capitalization losses per alleged stock drop increased by 29.7% to $1.79 billion. Actual observed settlements on fraud-on-the-market lawsuits also increased by 9.04%.
88 U.S. issuers were sued for alleged violations of Rule 10b-5 by a proposed class of investor plaintiffs. Based on allegations presented in first-filed class action complaints, alleged market capitalization losses against U.S. issuers amounts to $274.2 billion. U.S. SCA Rule 10b-5 Exposure increased by 14.7% relative to 2H 2023.
38 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 $259.8 billion, an increase of 17.9% relative to 2H 2023. Alleged market capitalization losses per private Rule 10b-5 claim against U.S. Large Caps increased by 27.3%, from $5.37 billion to $6.84 billion. Alleged market capitalization losses per alleged stock drop also increased by 36.1%, from $2.45 billion to $3.33 billion.
11 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 $5.6 billion, a decrease of 51% relative to 2H 2023. Alleged market capitalization losses per private Rule 10b-5 claim against U.S. Mid Caps decreased by 41.9%, from $880 million to $510 million. Alleged market capitalization losses per alleged stock drop decreased by 31.7%, from $460 million to $310 million.
39 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 $8.7 billion, an increase of 19.1% relative to 2H 2023. Alleged market capitalization losses per private Rule 10b-5 claim against U.S. Small Caps decreased by 5.3%, from $240 million to $220 million. Alleged market capitalization losses per alleged stock drop increased by 21.2%, from $130 million to $150 million.
6 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 slightly from $10.8 billion to $10.7 billion, or -.6% relative to 2H 2023. Alleged market capitalization losses per private Rule 10b-5 claim against Non-U.S. issuers decreased by 17.2%, from $2.16 billion to $1.78 billion. Alleged market capitalization losses per alleged stock drop decreased by 31.2%, from $1.2 billion to $820 million.