NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2010 annual reports on securities class action filings. The different methodologies employed by the two organizations have led to different numbers, but the trendlines are the same.
The findings for 2010 include:
(1) Filings are up slightly, with a decrease in credit-crisis filings being offset by an increase in regular filings (including a sharp uptick in M&A-related filings). NERA counts 239 filings (estimated total and up from 220 filings in 2009) and Cornerstone counts 176 filings (up from 168 filings in 2009). For some insight on why NERA has a larger total, see footnote 3 of the NERA report, which discusses its counting methodology.
(2) NERA found that the median settlement value was $11.1 million in 2010, over 30% higher than the 2009 median settlement value and the first time ever that the median has exceeded $10 million. Excluding outlier cases, the average settlement value was $42 million, in line with last year's record high.
(3) Cornerstone examined the litigation exposure following initial public offerings (IPOs). The report concludes that the highest risk is in the first few years after an IPO, when the company's stock price continues to be volatile. Indeed, a newly-public company has a 10 percent of being subject to a securities class action in the first three years after its IPO.
Quote of note (John Gould - Cornerstone): “With the wave of credit-crisis filings behind us, the industry focus for class action filings shifted to Health Care, where more than one out of every seven S&P 500 companies was involved in a class action.”
Oral argument took place in the Matrixx case this morning. The case addresses the issue of materiality, in particular whether adverse event reports (i.e., reports by users of a drug that they experienced an adverse event after using the drug) are material information even if they are not statistically significant. Also, there was a lot of talk about Satan. Seriously.
A few highlights (based on the transcript):
(1) Petitioner (Matrixx) argued that the key issue is whether the plaintiff has plead facts from which "you can draw a reliable inference that the product is the cause" of the adverse events. In the case of adverse event reports, that reliable inference exists if the adverse event reports are statistically significant. The justices were aggressively skeptical of that position right from the outset. First, a number of justices (Sotomayor, Kennedy, Ginsburg, Scalia, Roberts) wondered if the real issue is whether the company knew about information that could affect its stock price, even if that information was not credible. Second, Justices Kagan and Breyer disagreed that a reasonable investor would only want to know about adverse effects that were statistically significant. As Justice Breyer put it - "look, Albert Einstein had the theory of relativity without any empirical evidence . . . So I can't see how we can say this statistical evidence always works or always doesn't work."
(2) Respondent (investors) had a somewhat easier time, with Justice Breyer even inviting counsel to draft a disclosure rule for drug companies. Counsel responded that he would start with the "total mix of information" test for materiality and "where there is credible medical professionals describing the harms based on credible scientific theories to back up the link, a very serious health effect risk for products with many substitutes, and the effect in on a predominant line, then the company ought to disclose that information."
(3) The argument took a bit of a turn for Respondent, however, when counsel stated that even irrational information - such as a group of people believing that a product "has some link to satanic influences" - might need to be disclosed. Chief Justice Roberts wondered how companies could determine what should be disclosed under that standard and asked if it would matter whether the "product has particular satanic susceptibility"? In response to Respondent's argument that the scienter requirement might limit a company's liability for failing to disclose material, yet irrational, information, Justice Scalia noted that there was no difference between scienter and materiality in that "scienter is withholding something that is material that is known to be material and once . . . Satan is material, if the company thinks Satan is involved here, it has to put it in its report."
Disclosure: The author of The 10b-5 Daily submitted an amicus brief on behalf SIFMA and the U.S. Chamber of Commerce in support of petitioner.
In Halliburton, the Fifth Circuit declined to certify a class because the plaintiffs had failed to adequately demonstrate loss causation. At issue on appeal is whether the Fifth Circuit's requirement that plaintiffs establish loss causation at class certification by a preponderance of admissible evidence (but without the benefit of merits discovery) exceeds what is required by Federal Rule of Civil Procedure 23.
The Court asked for the government's views on the case. In a brief filed early last month, the government urged the Court to take the case and overturn the Fifth Circuit's decision. Among other things, the government noted that the Seventh Circuit has expressly rejected the Fifth Circuit's approach.
As always, SCOTUSblog has all of the relevant background materials.