The PwC Securities Litigation Study tracks US federal securities class actions filed since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995.
In the 16 years that we’ve conducted this study, we’ve seen that litigation, like many aspects of life, comes full circle. As one crisis or event passes, another emerges, fueling a new pipeline of securities litigation and enforcement cases. The accounting scandals of the early 2000s were supplanted by the stock option debacle, which in turn gave way to the financial crisis.
In 2011, we witnessed a further slowdown in financial crisis-related cases and the emergence of new and evolving trends, such as those involving mergers and acquisitions (M&A). The growth of M&A-related cases, reported in our 2010 study, continued in 2011, with one-quarter of all securities litigation filings in 2011 citing allegations of a breach of fiduciary duty in connection with an M&A transaction. This year’s study explores explanations for this ‘new’ focus of litigation, a trend we see increasing in years ahead.
Plaintiff attorneys appear undeterred in bringing cases against foreign issuers despite the Morrison ruling in 2010, with 61 cases in 2011, doubling 2010’s filings. The increase was sparked by the emergence of another focal point: China-based companies, especially those entering US markets via reverse merger transactions. The focus on accounting and governance-related issues at China-based companies, which surfaced in 2010, built momentum in 2011 among plaintiff attorneys (who brought an additional 37 cases); the Securities and Exchange Commission (SEC); and the Public Companies Accounting Oversight Board (PCAOB).