2012 Securities Litigation Study

April 2013
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At the crossroads, waiting for a sign

Each year, PwC’s Securities Litigation Study evaluates the private securities class action suits filed in the previous calendar year. In completing this, our seventeenth annual evaluation, it became clear that 2012 marked a significant departure: For the first time in the history of our reports, we were faced with a year that lacked any kind of sweeping, game-changing SEC rule or mandate, market driven event, or industry practice gone wrong. Rather, 2012 was a year that implied no clear direction as to where regulators or shareholders may focus in the future.

Overall, federal securities class action filings in 2012 were down by about 10% from 2011. The 172 cases filed was a 5% drop compared to the annual average number of cases filed since the enactment of the Private Securities Litigation Reform Act of 1995 (PSLRA), and a 3% dip below the annual average number of cases filed since the enactment of SOX.

While the 10% decline may at first blush seem insignificant, a closer examination reveals that 2012 started very differently than it ended. The first half of 2012 saw 96 cases, or an average of 48 cases per quarter, consistent with the quarterly average of 48 cases during 2011. Further, 34 of 96 cases during the first half of 2012 were accounting-related (35%), again consistent with the 39% of cases that included accounting allegations during 2011. In stark contrast, the second half of 2012 declined to 76 cases, of which only 22% included accounting allegations.

Other notable findings in the 2012 study include:

  • Accounting cases diminish, most significantly against foreign issuers - The number of cases that alleged accounting fraud decreased from 74 in 2011 to 51 in 2012, a 31 percent decline. According to PwC, the decline reflects a dwindling number of cases against FIs.
  • Health industry sees more cases - The health industry topped the charts as the industry with the highest number of filings for 2012 (38 filings), accounting for approximately 22 percent of total cases filed. The average proportion of filing activity against health industry during the past five years has been approximately 17 percent of total filings.
  • Second and Ninth Circuits continue to dominate, but to a lesser extent - The Second and Ninth Circuits saw the most filings among the circuits, with 48 and 32 cases, respectively. However, the 80 combined cases accounted for a relatively low 47 percent of all cases, the first time in the past five years there were more cases filed outside of the Second and Ninth Circuits than within.

This year's report examines the forces behind the numbers.