SECURITIES FRAUD LITIGATION
CD: What key trends are shaping the securities litigation landscape? To what extent has there been an uptick in the number of securities fraud cases?
Gerber: The number of securities class actions filed in 2021 reflects a decrease from recent years, largely because of the continuing strength of the stock market, as well as a shift of merger objection suits away from class actions. However, such actions continue to be regularly filed following large share price declines, including ones caused by unexpected negative events suffered by companies, such as data breaches, negative short seller reports, and product recalls. Plaintiffs are also filing an increasing number of lawsuits concerning non-traditional securities offerings, including special purpose acquisition companies (SPACs) and direct listings, as well as cases challenging cryptocurrencies as unregistered securities.
Blake: The past five years have seen an increase in the number of securities fraud cases filed each year. The rise of so-called ‘event-driven litigation’ is one reason for this uptick. Unlike traditional securities fraud litigation, which is focused on accounting or financial issues, event-driven litigation follows a stock drop after news of an adverse corporate event. Investors then sue the company for allegedly inadequate risk disclosure. Current securities litigation trends, such as the increase in filings related to companies’ response to the coronavirus (COVID-19) pandemic and data breaches, are illustrative of event-driven securities litigation. Additionally, there was also a significant increase in SPAC-related securities litigation in 2021, where investors sue a company that went public through a merger for allegedly making false or misleading statements during the so-called ‘de-SPAC’ deal.
Jan-Mar 2022 issue
Cleary Gottlieb Steen & Hamilton LLP
Simpson Thacher & Bartlett LLP
Sullivan & Cromwell LLP