U.S. Corporate Exposure to Alleged Violations of the Securities Exchange Act Amounts to $50.9 billion in 4Q 2019 and $321.1 billion in 2019

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Jan 10, 2020, 01:10 ET

BETHESDA, Md., Jan. 10, 2020 /PRNewswire/ -- Aggregate exposure of U.S. public corporations to securities class action (SCA) lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Exchange Act amounts to $50.9 billion during 4Q of 2019. Cumulative SCA Exchange Act exposure for 2019 amounts to $321.1 billion. According to a report released today by SAR, the Rule 10b-5 litigation rate against publicly traded U.S. corporations decreased to 1.06% in 4Q'19 from 1.16% in 3Q'19. The report – SAR Securities Exchange Act Class Action Litigation Exposure Report – 4Q 2019 – indicates that the Rule 10b-5 Exposure percentage of 37 defendant corporations is 16 basis points, or about one sixth of the aggregate market capitalization of all U.S. corporations listed on U.S. exchanges.

"During the fourth quarter, close to one quarter of corrective disclosures alleged by investors in securities class action lawsuits exhibit an absence of indirect price impact. This is indicative of a further decrease in the quality of complaints filed against D&Os of U.S. public corporations for alleged violations of Rule 10b-5," said Nessim Mezrahi, CEO of SAR.

The 4Q'19 report presents the following key observations in the securities class action arena:

37 U.S. public corporations were sued for alleged violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Based on the allegations presented in the first filed SCA complaint against each defendant corporation during 4Q'19, aggregate market capitalization losses amount to approximately $50.9 billion. 165 U.S. corporations were sued for alleged violations of Rule 10b-5 in 2019, amounting to $321.1 billion in market capitalization losses.
Aggregate U.S. corporate exposure to SCAs that allege violations of Rule 10b-5 amounts to 15.7 basis points of the total market capitalization of U.S. corporations listed on U.S. exchanges during 4Q'19 – a decrease of 5.9 basis points relative to 3Q'19. The aggregate 4Q'19 U.S. Rule 10b-5 litigation rate is 1.06%.
23% of alleged corrective disclosures that claim to rectify alleged misstatements or omissions by directors and officers exhibit an absence of indirect price impact and do not surpass a statistical threshold associated with heightened pleading standards of loss causation – an increase of 3 percentage points relative to 3Q'19.
16 U.S. large cap corporations were sued for alleged violations of Rule 10b-5. This is an increase of 3 SCAs filed against large caps during 4Q'19. Large cap corporate exposure to Exchange Act claims was $41.1 billion during 4Q'19 – a decrease of $14.9 billion in market capitalization losses, or 27% from 3Q'19. The large cap 4Q'19 U.S. Rule 10b-5 litigation rate is 1.87%.
7 U.S. mid cap corporations were sued for alleged violations of Rule 10b-5. Mid cap corporate exposure to Exchange Act claims was $8 billion during 4Q'19 – an increase of $1 billion in market capitalization losses, or 15% from 3Q'19. The mid cap 4Q'19 U.S. Rule 10b-5 litigation rate is 1.17%.
14 U.S. small cap corporations were sued for alleged violations of Rule 10b-5. Small cap corporate exposure to Exchange Act claims was $1.9 billion – a decrease of $3.5 billion in market capitalization losses, or 66% from 3Q'19. The small cap 4Q'19 U.S. Rule 10b-5 litigation rate is 0.69%.