Rule 10b-5 Securities-Fraud Litigation Exposure Stabilized in 2023

BETHESDA, Md., Jan. 10, 2024 /PRNewswire/ -- SAR, a data analytics company specializing in public D&O, today published the SCA Rule 10b-5 Exposure Report for 4Q 2023.  According to the report, exposure of U.S. and non-U.S. issuers to Rule 10b-5 private securities-fraud litigation exhibited notably lower volatility throughout 2023 relative to the preceding three years.   Market capitalization losses alleged by investor plaintiffs in open-market securities fraud complaints against public companies stabilized at a higher quarterly threshold during 2023.  Average quarterly securities class action exposure in 2023 was greater than the quarterly average exhibited during the preceding three years.

According to SAR, investor plaintiffs claimed market capitalization losses against issuers of approximately $250 billion during the second half of 2023.  The report's analyses estimate approximately $2.78 billion in market capitalization losses per securities class action lawsuit against defendant issuers that allegedly violated SEC Rule 10b-5, and approximately $1.37 billion per alleged stock drop.  Both metrics declined by 26.5% and 26% relative to the first half of 2023, respectively.

"Our data and analyses indicate aggregate market capitalization losses shareholders allege to be fraud-related — stabilized at a higher quarterly threshold throughout 2023 relative to the preceding three years," said Nessim Mezrahi, CEO of SAR.

Key trends according to the SAR SCA Rule 10b-5 Exposure Report for 4Q 2023:

• Significantly lower volatility in market capitalization losses alleged against issuers throughout FY 2023 with a notable decrease in magnitude during 2H 2023.
  
  
• Data and analysis indicate with a high degree of confidence that Rule 10b-5 private securities-fraud filing frequency and potential loss severity need not move in tandem; the magnitude in potential loss severity is claim and issuer-specific.
  
  
• During 2H 2023, there was an unremarkable increase in filing frequency of fraud-on-the-market suits, with lower exposure and implied loss severity relative to the first half of 2023.
  
  
• 85 U.S. issuers were sued for alleged violations of Rule 10b-5 during 2H 2023. Based on allegations presented in the first-filed class action complaint against each defendant issuer, U.S. SCA Rule 10b-5 Exposure amounts to $239.1 billion. U.S. SCA Rule 10b-5 Exposure decreased -21.6% relative to 1H 2023.
  
  
• 41 U.S. Large Caps were sued for alleged violations of Rule 10b-5. The U.S. Large Cap SCA Rule 10b-5 Exposure amounts to $220.3 billion, a decrease of 24% relative to 1H 2023.
  
  
• 13 U.S. Mid Caps were sued for alleged violations of Rule 10b-5. The U.S. Mid Cap SCA Rule 10b-5 Exposure amounts to $11.4 billion, an increase of 84% relative to 1H 2023.
  
  
• 31 U.S. Small Caps were sued for alleged violations of Rule 10b-5. The U.S. Small Cap SCA Rule 10b-5 Exposure amounts to $7.3 billion, a modest increase of 2% relative to 1H 2023.
  
  
• 5 non-U.S. issuers that trade via ADRs in the U.S. public markets were sued for alleged violations of Rule 10b-5. The ADR SCA Rule 10b-5 Exposure decreased from $16 billion to $10.8 billion, or -32% relative to 1H 2023.

Media contact: [email protected]

SOURCE SAR