Global exposure of publicly traded companies 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 $37.8 billion in 1Q’21 – a decline of 78.7% relative to 4Q’20.
U.S. SCA Rule 10b-5 Exposure of U.S. issuers amounts to $33.6 billion in 1Q’21, a material decline of 65.7% relative to 4Q’20. ADR SCA Rule 10b-5 Exposure of non-U.S. issuers that trade via American Depository Receipts (ADRs) on U.S. exchanges amounts to $4.3 billion in 1Q’21, a material decline of 94.6% relative to 4Q’20.
According to the SAR Securities Class Action Rule 10b-5 Exposure Report – 1Q 2021, the U.S. SCA Rule 10b-5 Exposure Rate of U.S. issuers declined to 0.08% in 1Q’21 from 0.25% in 4Q’20. The U.S. SCA Rule 10b-5 Litigation Rate declined by 3 basis points to 0.94% in 1Q’21.
In 1Q’21 the ADR SCA Rule 10b-5 Exposure Rate of non-U.S. issuers fell to 0.01% from 0.27% in 4Q’20. The ADR SCA Rule 10b-5 Litigation Rate decreased by 15 basis points to 0.20%.
“Record-breaking U.S. equity markets combined with focused judicial scrutiny of securities class actions filed in federal courts led to a material decline in Rule 10b-5 exposure this past quarter,” said Nessim Mezrahi, CEO of SAR.
1Q 2021 Securities Class Action Landscape:
- 34 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 $33.6 billion. Quarterly frequency remained steady, and exposure declined materially by 65.7% relative to 4Q’20.
- 11 U.S. large cap issuers were sued for alleged violations of Rule 10b-5. The Large Cap SCA Rule 10b-5 Exposureamounts to $22.8 billion, a material decline of 75.6% relative to 4Q’20. The Large Cap SCA Rule 10b-5 Exposure Rate decreased by 19 basis points to 0.06%. The Large Cap SCA Rule 10b-5 Litigation Rate decreased to 1.06% from 1.96% in 4Q’20.
- 4 U.S. mid cap issuers were sued for alleged violations of Rule 10b-5. The Mid Cap SCA Rule 10b-5 Exposureamounts to $2.4 billion, an increase of $228 million, or 10.6% relative to 4Q’20. The Mid Cap SCA Rule 10b-5 Exposure Rate remained the same at 0.15%. The Mid Cap SCA Rule 10b-5 Litigation Rate decreased by 3 basis points to 0.62% in 1Q’21.
- 19 U.S. small cap issuers were sued for alleged violations of Rule 10b-5. The Small Cap SCA Rule 10b-5 Exposureamounts to $8.4 billion, a material increase of $6 billion, or 245.7% relative to 4Q’20 and the highest exposure during the preceding four quarters. The Small Cap SCA Rule 10b-5 Exposure Rate increased by 79 basis points to 1.15%, also the highest during the preceding four quarters. The Small Cap SCA Rule 10b-5 Litigation Rateincreased to 0.97% from 0.64% in 4Q’20.
- 4 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 materially by $75 billion to $4.3 billion, or 94.6% relative to 4Q’20. The ADR SCA Rule 10b-5 Exposure Rate amounts to 0.01%, a material decline of 26 basis points relative to 4Q’20. The ADR SCA Rule 10b-5 Litigation Rate declined to 0.20%, 15 basis points lower relative to 4Q’20.
Media Contact: Carolina M. Doherty, VP of Business Development, [email protected]
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SOURCE SAR
