Chubb has released a new report on the rising volume of securities class action lawsuits, which have more than doubled in the last four years.
The report, From Nuisance to Menace: The Rising Tide of Securities Class Action Litigation, examines the origin, scope, and cost of securities class actions and offers proposals for reform. The report features proprietary Chubb claims analysis and perspectives from securities lawyers in the United States.
In 2017 and 2018, the number of securities class actions filed in federal court broke new records each year, and the volume has doubled since 2014, according to NERA Economic Consulting. Last year, Cornerstone Research found that an average of one in 12 public companies was the target of a securities class action. Among S&P 500 companies, the likelihood was one in 10.
“There is a growing cohort of lawyers filing meritless lawsuits in federal and state courts across the United States every time a merger or acquisition is announced or a corporate misfortune impacts a company's share price,” said John Keogh, executive vice chairperson and chief operating officer of Chubb. “The financial rewards from these lawsuits are accruing not to harmed investors but to lawyers who are bringing cases of dubious merit in order to reap a windfall in legal fees and a disproportionate share of settlement dollars.”
Chubb's analysis of merger-objection lawsuits, which are brought when two companies enter into a merger or acquisition, found that 61 percent of the total costs of the litigation flowed to lawyers. Shareholders received the smaller portion – 39 percent. In 2018, 85 percent of mergers and acquisitions transactions were challenged with a merger-objection lawsuit.
“Rampant securities litigation is one of the reasons why the number of public companies in the U.S. is half of what it was two decades ago,” Mr. Keogh observed. “Fewer public companies mean fewer investment opportunities for the average small investor – and therefore less opportunity to participate in American growth and prosperity. Chubb is committed to sharing our data, insights, and resources to raise awareness about this problem and to work on behalf of American business to effect meaningful reform.”
Learn more: Chubb Report.
Victoria Spears
Victoria Prussen Spears is senior vice president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. A graduate of Sarah Lawrence College and Brooklyn Law School, Ms. Spears was an attorney at a leading New York City law firm before joining Meyerowitz Communications. She may be contacted at [email protected].