Filings with allegations related to SPACs soared.
Menlo Park, Calif.—Plaintiffs filed far fewer securities class action complaints in 2021 than in the previous year, 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 Year in Review, found that plaintiffs filed 218 securities class action cases in federal and state courts, a 35% drop from 333 filings in 2020. The decline was largely due to a substantial decrease in class action filings related to mergers and acquisitions, and a decline in federal Rule 10b-5 filings without Section 11 allegations.
Following the rise in special purpose acquisition company (SPAC)-related mergers, core federal SPAC filings increased more than sixfold from five in 2020 to 32 in 2021. One-third of these filings involved the auto industry.
“Over the last three years, roughly 13% of SPAC mergers were followed by securities litigation, typically within less than six months. This is slightly above the cumulative core litigation rate that recent newly public issuers face in the first two years after traditional IPOs,” said Alexander “Sasha” Aganin, a report coauthor and Cornerstone Research senior vice president. “With additional SPAC mergers closing in the coming months and potential for more stock market volatility, we expect a busy securities litigation season in 2022.”
While the number of state court filings alleging claims under the Securities Act of 1933 fell sharply in 2021, federal-only filings rose. State filings have continued to decline since the Delaware Supreme Court’s March 2020 ruling in Salzberg v. Sciabacucchi upholding the validity of federal forum-selection provisions in corporate charters. Overall, the number of Section 11 filings in 2021 was roughly in line with the previous year.
“In addition to a marked decline in the number of companies sued in 2021, there was a 41% decline in the maximum dollar value of those claims. The decline is attributable largely to a dearth of ‘mega filings’—claims with theoretical damages exceeding $10 billion. The dollars at stake might well be a more informative statistic for investors and plaintiff lawyers than the number of companies sued,” observed Professor Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse and a former commissioner of the Securities and Exchange Commission. “The stock market’s strength in 2021 might explain a good bit of the decline in plaintiff activity, measured either in dollars or by the number of complaints filed.”