Jan 26 (Reuters) - A wheezing stock market and the prospect of greater damages stemming from corporate fraud may be driving the biggest rush of U.S. securities class actions since the financial crisis.
Shareholders in 2015 filed 189 lawsuits accusing companies of making false or misleading statements or concealing bad news about their businesses or mergers, a study released on Tuesday by Cornerstone Research and Stanford Law School shows.
The number rose from 170 a year earlier, and was the highest since 223 lawsuits were filed in 2008. A separate study this week from NERA Economic Consulting also noted a seven-year high.
Big cases drove some of the increase.
Cornerstone’s “maximum dollar loss,” or the largest sums that shareholders might claim in damages, rose to $371 billion from $215 billion in 2014, though it remained below the $816 billion level from 2008.
There were also five “mega” lawsuits, filed after companies’ market values shrank at least $5 billion immediately after bad news became public. In 2014, there were no such cases.
“All other things equal, a down market is likely a positive factor that drives more business for plaintiffs’ class action lawyers,” Joseph Grundfest, a Stanford University law professor, said in a phone interview. “A large majority of these cases are stimulated by stock price declines.”
Forty-three class actions targeted biotechnology, drug and healthcare companies, Cornerstone said. Just 11 targeted energy companies. None targeted banks, sparing that sector for the first time since 2006.
Though not legally obligated, lawyers were in a hurry to sue. Half took no more than 10 days after the end of proposed class periods to sue, which Grundfest attributed to a “Twitter-verse” driving lawyers to quickly line up the best plaintiffs.
Settlements, meanwhile, were on the upswing, rising to 108 from 99 in 2014 according to NERA. The average was $52 million, topped by $970.5 million for the insurer American International Group Inc, NERA said.
One other factor that may encourage more federal class actions relating to mergers is Delaware judges’ growing antagonism to “disclosure-only” settlements.
Such accords, where shareholders get no cash, must meet a high bar to win approval in that state under new standards announced on Friday.
“This is a fascinating new development,” Grundfest said. “At the margin, if it drives some of these lawsuits away from Delaware under state law theories and into federal court, then it could actually increase the number of (federal) filings.” (Reporting by Jonathan Stempel in New York; Editing by Andrew Hay)
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