In 2024, federal court securities class action lawsuit filings increased for the second year in a row. Although settlement amounts were down compared to 2023 – a year that saw particularly large settlements – they remained high compared to other recent years. Catch up on the latest trends in 2024 securities class action activity and make sure your company is protected.
Securities Class Action Activity Is Heating Up
The D&O Diary says the number of federal court securities class action lawsuit filings increased in both 2023 and 2024.
According to the Securities Class Action Filings 2024 Year in Review from Cornerstone Research, there were 225 core filings (excluding M&A filings) in 2023, up from 215 in 2023 and 14% higher than the historical average.
When broken down by cause, several trends stand out:
· AI-related filings surged from seven in 2023 to 15 in 2024.
· COVID-19-related filings saw a resurgence, going from 11 in 2023 to 15 in 2024.
· Cryptocurrency-related filings dropped to seven, compared to 15 in 2023 and 23 in 2022.
· Cybersecurity-related filings fell to just two, continuing the trend of falling litigation that has occurred since 2022.
· SPAC-related filings fell to 11, down from a high of 33 in 2021.
Overall, 4.0% of U.S. exchange-listed companies were subject to federal or state filings in 2024, up from 3.3% in 2023.
Lag Between IPO and Filings
Cornerstone Research says the lag between an IPO and a related federal or state filing was 371 days in 2024. This is down significantly compared to 2023, when the average lag was 508 days. However, it is still higher than the historical average of 307 days, inferring that longer delays are becoming the norm. Cornerstone Research also points out that the average lag has varied considerably from year to year.
Settlement Amounts See a Slight Reprieve
The number of class action settlements also increased in 2024, but the settlement amounts decreased, at least compared to the previous year.
According to the Securities Class Action Settlements 2024 Review & Analysis from Cornerstone Research, there were 88 securities class action settlements in 2024, and they totaled $3.7 billion. In comparison, there were 83 settlements in 2023, and they totaled $4.0 billion. The median settlement amount in 2024 came out to $14.0 million, which is 10% lower than the median 2023 amount. However, the median settlement amount for all settlements between 2015 and 2023 is $11.3 million, so 2024 settlements were still higher than average. Notably, there were fewer mega settlements in 2024.
Derivative Class Actions Are a Growing Threat
In a derivative class action lawsuit, one or more shareholders file a lawsuit on behalf of the corporation, often against the directors or officers accused of harming the corporation.
Cornerstone Research says that securities class action lawsuits often involve parallel derivative lawsuits, and that the settlements tend to be larger when this happens. In 2024, 52% of cases were accompanied by parallel derivative lawsuits, and the median settlement amount was $18.6 million, higher than the median settlement amount of $14.0 million for all cases.
Actions Against Life Sciences Companies
Life sciences companies face significant securities class action activity in 2024. According to a report from Sidley, a law firm that defends securities class action litigation, 44 new class action lawsuits were filed against publicly traded life sciences companies in 2024, up from 34 in 2023. However, many lawsuits against life sciences companies are dismissed; 59% of the motions to dismiss filed in 2024 were successful, a success rate that is consistent with recent years.
The D&O Diary comments that plaintiff lawyers are quick to file securities lawsuits when life sciences companies experience setbacks, but such lawsuits are often unsuccessful.
Key Takeaways for Executives
Securities class action litigation is a significant threat for any company with investors. D&O insurance provides valuable protection, but it’s important to verify that you have sufficient protection in place before a claim occurs.
· Do you have coverage for IPO and pre-IPO activity? Litigation often centers around claims made as a company prepares to go public, so it’s important to secure insurance early enough to obtain coverage for the IPO process.
· Do you have tail coverage? The lag between the IPO and a related claim is unpredictable, but it tends to be around a year or longer on average. Sometimes, it can be much longer. Other events can also spur litigation with long lags. If coverage lapses in the meantime – for example, because the company has shut down – tail coverage is essential for ensuring that executives are still protected.
· Do you have sufficient Side A coverage? Side A coverage provides protection for executives when the company cannot provide indemnification, such as after bankruptcy or during a derivative lawsuit. The increase in derivative litigation highlights the importance of this coverage.
Is your D&O insurance keeping up with the latest trends in securities class action activity? NSI Insurance Group can help you secure sufficient coverage to protect your company and your executives. Request a complimentary D&O analysis and quote >
