Global Corporate Exposure to Alleged Violations of Rule 10b-5 under the Exchange Act Amounts to $75.2 billion in 1Q 2020

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Apr 10, 2020, 04:10 ET

BETHESDA, Md., April 10, 2020 /PRNewswire/ -- Global exposure of U.S. issuers and non-U.S. issuers to securities class action (SCA) lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 promulgated thereunder, amounts to $75.19 billion in 1Q'20. U.S. SCA Rule 10b-5 Exposure of U.S. issuers amounts to $63.5 billion in 1Q'20, an increase of 24.67% from 4Q'19. ADR SCA Rule 10b-5 Exposure of non-U.S. issuers that are listed on U.S. exchanges and trade via American Depository Receipts (ADRs) amounts to $11.68 billion in 1Q'20.

According to the SAR Securities Class Action (SCA) Rule 10b-5 Exposure Report – 1Q 2020, the U.S. SCA Rule 10b-5 Exposure Rate of U.S. issuers increased to 0.21% from 0.16% in 4Q'19, or one fifth of the aggregate market capitalization of U.S. issuers. The 1Q'20 U.S. SCA Rule 10b-5 Exposure Rate is below the 2019 average of 0.26%. The U.S. SCA Rule 10b-5 Litigation Rate of U.S. issuers increased to 1.19% from 1.06% in 4Q'19.

"This past quarter, the COVID-19 pandemic-driven economic correction drove a $2.27 trillion dollar decline in market capitalization of U.S. large caps and ended the longest-running bull market in U.S. history. During the first quarter, claimed shareholder losses for alleged violations of Rule 10b-5 against directors and officers of U.S. large caps increased by $13.83 billion, or 34% relative to 4Q of 2019. These unprecedented market dynamics solidify the hardening D&O insurance market," said Nessim Mezrahi, CEO of SAR.

1Q 2020 Securities Class Action Landscape observations:

41 U.S. issuers were sued for alleged violations of Rule 10b-5. Based on the allegations presented in the first filed SCA complaint against each defendant corporation, the aggregate U.S. SCA Rule 10b-5 Exposure amounts to $63.5 billion. This is a notable increase of $12.57 billion, or 24.67% relative to 4Q'19.
18 U.S. large cap issuers were sued for alleged violations of Rule 10b-5. The Large Cap SCA Rule 10b-5 Exposure amounts to $55 billion, a notable increase of 33.61% relative to 4Q'19. The Large Cap SCA Rule 10b-5 Exposure Rate increased by 6 basis points to 0.20%. The rate increase was driven by the increase in claimed shareholder losses and the notable reduction in market capitalization of large cap corporations, which declined by 7.48% from 4Q'19. The Large Cap SCA Rule 10b-5 Litigation Rate surpassed 2% for the first time since 2Q'19.
7 U.S. mid cap issuers were sued for alleged violations of Rule 10b-5. The Mid Cap SCA Rule 10b-5 Exposure amounts to $5.28 billion, a decrease of 33.58% relative to 4Q'19. The Mid Cap SCA Rule 10b-5 Exposure Rate decreased by 18 basis points to 0.41%. The Mid Cap SCA Rule 10b-5 Litigation Rate decreased to 1.12% in 1Q'20 from 1.17% in 4Q'19.
16 U.S. small cap issuers were sued for alleged violations of Rule 10b-5. The Small Cap SCA Rule 10b-5 Exposure amounts to $3.26 billion, a material increase of 76.25% relative to 4Q'19. The Small Cap SCA Rule 10b-5 Exposure Rate increased by 21 basis points in 1Q'20 to 0.49%. The Small Cap SCA Rule 10b-5 Litigation Rate increased to 0.83% in 1Q'20 from 0.69% in 4Q'19.
6 Non-U.S. issuers that trade via ADRs in the U.S. were sued for alleged violations of Rule 10b-5. The ADR SCA Rule 10b-5 Exposure amounts to $11.7 billion. The ADR SCA Rule 10b-5 Exposure Rate in 1Q'20 is 0.05%. The ADR SCA Rule 10b-5 Litigation Rate in 1Q'20 is 0.30%.