U.S. Corporate Exposure to Alleged Violations of the Securities Exchange Act Amounts to $135.1 billion in 2Q 2019

According to a report released today by SAR, aggregate exposure of U.S. public corporations to securities class action lawsuits that allege violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act was $135.1 billion during the second quarter of 2019

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SAR

Jul 10, 2019, 07:10 ET

BETHESDA, Md., July 10, 2019 /PRNewswire/ -- Aggregate exposure of U.S. public corporations 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 amounted to $135.1 billion during the second quarter of 2019. According to a report released today by SAR, that is an increase of $68.5 billion, or 103%, from market capitalization losses reported during the first quarter of 2019. The report – SAR Securities Exchange Act Class Action Litigation Exposure Report – 2Q 2019 – indicates that SCA litigation exposure of 42 defendant corporations is 43 basis points of the aggregate market capitalization of all U.S.-based public corporations.

"The number of companies that were sued for allegations of fraud on the market remained steady but claimed shareholder losses more than doubled this past quarter. The magnitude of stock price declines that are alleged to have caused damages to investors in large cap corporations is the primary driver of this significant increase in SCA exposure," said Nessim Mezrahi, CEO of SAR.

The 2Q'19 report presents the following key observations in the securities class action arena:

42 U.S.-based public corporations were sued for alleged violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934. Based on the allegations presented in the first-filed SCA complaint against each defendant corporation, aggregate market capitalization losses amount to approximately $135.1 billion.
Aggregate U.S. corporate exposure to SCAs that allege violations of the Exchange Act amounts to 42.6 basis points of the total market capitalization of U.S. publicly traded corporations during 2Q'19 – an increase of 20 basis points relative to 1Q'19.
11.8% of alleged corrective disclosures that rectify alleged misstatements or omissions made by directors and officers exhibit an absence of price impact and do not surpass a statistical threshold associated with heightened pleading standards of loss causation – a decrease of 7.15 percentage points relative to 1Q'19.
9 U.S. large cap corporations were sued for alleged violations of Rule 10b-5. This is a notable decline of 8 SCAs filed against large caps during 2Q'19. Large cap corporate exposure to Exchange Act claims was $125.4 billion during 2Q'19 – an increase of $67.9 billion in market capitalization losses, or 118% from 1Q'19.
11 U.S. mid cap corporations were sued for alleged violations of Rule 10b-5. Mid cap corporate exposure to Exchange Act claims was $5.8 billion during 2Q'19 – a decrease of $328 million in market capitalization losses, or 5.3% from 1Q'19.
22 U.S. small cap corporations were sued for alleged violations of Rule 10b-5. Small cap corporate exposure to Exchange Act claims was $3.9 billion – an increase of $843 million in market capitalization losses, or 27.6% from 1Q'19.