Overall filing rates are reflected in Figure 1 below (all charts courtesy of NERA). Notably, this figure does not include the many such class suits filed in state courts or the increasing number of state court derivative suits, including many such suits filed in the Delaware Court of Chancery.
Today, well over 80% of all M&A transactions are challenged by investors, either in federal court class actions, state court class actions, or shareholder derivative actions. As noted in our mid-year review, a majority of the Justices in Amgen acknowledged serious misgivings about the fraud-on-the-market theory and signaled an opening to revisit Basic. The Court’s acceptance of the petition for review suggests an openness to substantially modifying or even overruling Basic. Although the matter has not yet been fully briefed, opening briefs have presented the initial assault on Basic.
This is so even where the proposed transaction provides shareholders of the acquired corporation with substantial premiums. If the Court were to abandon or substantially curtail Basic, it would make securities-fraud class actions much more difficult to maintain, as "securities-fraud class actions [are made] possible" because the fraud-on-the-market presumption "convert[s] the inherently individual reliance inquiry into a question common to the class." Amgen, 133 S. And the significance of the issue has inspired a flurry of amicus briefs, including from former members of Congress, law professors, and industry groups.
As discussed in later sections of this Year-End Report, several key cases may significantly alter the securities litigation landscape and may materially impact future levels of new case filings and settlements. The academic consensus now appears to reject Basic‘s view of market efficiency, in part because investor attempts to identify undervalued stocks demonstrate widespread betting that securities markets are inefficient. As argued in an amicus brief submitted by Vivendi S.
The case that could have the greatest dampening effect on new securities class actions will be the Supreme Court’s decision in Halliburton II, in which a ruling is expected by the end of this Term in June 2014. Markets move irrespective of public information due to several factors, such as the herd mentality of investors, algorithmic trading programs, and response to media attention to information previously made public, among others. A., many investors, including sophisticated institutional investors, volatility arbitragers, and "value" investors, "do not rely on the integrity of market price" but instead rely on their own, private valuation of stock.
But the number of settlements in the last two years represents a general decline in the number of settlements per year, dating back to the high-water mark of 151 settlements in 2007. 1989)) have been shown to be largely incapable of differentiating between efficiently and inefficiently priced stocks. While Basic adopted the presumption of reliance because it was necessary for class actions, the briefs question the implicit premise that such class actions are necessary to vindicate securities fraud, and instead suggest that these class actions have become nothing more than a drain on business. The costs to defendants of allowing class certification and then later examining materiality or loss causation as a merits issue are simply too high, the AICPA argued, because defendants settle even cases that have no merit once a class is certified.
Median settlement amounts in 2013 dropped dramatically in 2013 compared to 2012: while 2012 median settlements stood at .3 million, the 2013 median amount was .1 million. And while the presumption of reliance is said to be rebuttable, in all practical terms it is irrebuttable. In its amicus brief, the Committee on Capital Markets Regulation has noted that the aggregate value of securities class action settlements was approximately .1 billion from 2000 through 2012, suggesting that insurance costs for Fortune 500 companies are six times higher in the United States than in Europe as a result. See "A Shot Across the Basic Bow," in our 2013 Mid-Year Securities Litigation Update. If, as many court observers predict, the Court in fact overturns the fraud-on-the-market theory, securities class actions as we know them may be consigned to the dust heap. The 2013 median amount is consistent with the five year average of .68 million, so perhaps it signals a "return to normal" after several years of outsized credit crisis settlements. As a result, actions are settled as "routine tolls that large companies must pay" and the cost of litigation and potential damages make it economically prudent to settle and abandon meritorious defenses. In stark contrast to median settlement amounts, the average settlement for all settled cases in 2013 was million–over double the average amount in 2012 of million. 13-317, at 4-7. It is perhaps unsurprising, therefore, that the theory has led to confusion and inconsistent results. If, alternatively, the Court does not entirely overrule the "fraud on the market" theory, but raises the bar on the proof required to establish that securities trade in an efficient market, that too is likely to lead to fewer cases being filed and/or more cases that do not survive class certification.