SPAC-related filings increase sharply in first half of 2021.
Menlo Park, Calif.—Plaintiffs filed 112 new securities class action lawsuits in federal and state courts in the first half of 2021, down 25% from the second half of 2020. This was the lowest number of filings since the first half of 2015, according to a report released today by Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.
The report, Securities Class Action Filings—2021 Midyear Assessment, found that the decline in filing activity was largely driven by a 66% drop in filings related to mergers and acquisitions compared to the second half of 2020. Of the 112 filings in the first half of 2021, only 12 were M&A filings. Federal and state court class actions alleging claims under the Securities Act of 1933 also declined, continuing the trend observed in 2020.
Despite the substantial decrease in total filings, federal filings related to special purpose acquisition companies (SPACs) doubled in the first half of 2021 compared to all of 2020. There were 14 SPAC filings in the first six months of 2021, with more than half alleging that the potential targets defrauded investors by misrepresenting their product’s viability.
“As SPAC IPOs continued to explode in 2020 and earlier this year, filings against SPAC-related entities also increased sharply in the first half of 2021,” said Alexander “Sasha” Aganin, report coauthor and Cornerstone Research senior vice president. “Former SPACs have experienced a Section 10(b) litigation rate of approximately 14% after completion of their mergers, which is roughly comparable to the cumulative litigation rate experienced by traditional IPOs over the subsequent three years.”
The report also found a sharp decline in the number of 1933 Act filings in state rather than federal court, continuing the trend observed in the Securities Class Action Filings—2020 Year in Review. All five 1933 Act claims filed in state court in the first half of 2021 were brought in New York.
“The better the market for investors, the worse the market for class action securities lawyers,” observed Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, and a former Commissioner of the Securities and Exchange Commission. “Plaintiff lawyers typically rely on sharp price declines for their best cases, and if the market isn’t generating those declines, plaintiffs’ ability to file big ticket securities fraud actions is limited.”
COVID-19 filings began tapering off in the first half of 2021, with six of the 10 pandemic-related filings occurring in January and February and only one filing in May or June. Of these filings, 50% were related to treatments or vaccines that failed to make it to market.