In his April 30th D&O Diary post, Kevin LaCroix highlights the recent decline in Securities Class Action filings. He cites two recent publications, a PwC study and an Advisen report, which reference that decline most notably during the second half of 2012 through the first quarter of 2013. After crunching some numbers, we view the recent reports as part of a longer running trend in securities litigation.
Utilizing our comprehensive database of Class Actions filed against publicly traded companies for disclosure related misstatements, we see that new filings drop from about 180 per year to about 130 per year in the decade spanning 2001 to 2010. Roughly paralleling that trend is a concurrent reduction in restatement related Class Action cases. Restatement related cases accounted for 30-40% of filings in the first half of the decade before falling precipitously to about 12% later in the period. Non-restatement accounting-related cases have remained constant as a percentage of filings while non-accounting and merger-related cases trend upward in both absolute numbers and as a percentage of filings.
One possible explanation for the decline in restatement related class actions lies in the landscape sculpted by the Sarbanes-Oxley Act of 2002 (SOX). Restatements rose following SOX and then declined. Class actions related to restatements followed this trend while the filing of new Securities Class Actions decreased overall. Since suits filed against companies that did not file a restatement are more likely to be dismissed it follows that fewer Securities Class Actions ultimately reach a settlement.
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