Litigation Comes Full Circle According to PwC’s 2011 Securities Litigation Study; Findings Reveal a Rise of M&A Filings, a Surge of China-Related Cases and the Descent of Financial Crisis Matters

Overall number of settlements decreases, while total value of settlements rises

Technology overtakes financial services industry in filings

NEW YORK, April 11, 2012 – Federal securities class action cases increased for the third consecutive year in 2011 with nearly 200 cases representing a 10 percent increase over 2010 and 22 percent increase over 2009, according to the 16th annual Securities Litigation Study released today by PwC US. The study points to new trends in the securities litigation arena including a focus on Mergers and Acquisitions (M&A)-related cases, which increased by 17 percent reaching an all-time high in 2011. Forty-eight M&A-related cases were filed in 2011, representing the largest single category of non-accounting cases. Financial crisis filings, in contrast, hit their lowest point (nine cases filed) since the start of the financial downturn in 2008.

M&A-related cases are cases that are filed very quickly following the announcement of the transaction and the allegations are relatively straightforward. Many of the cases are settled out of court shortly after they are brought. According to PwC, plaintiffs do not require a considerable investment of time or resources, making it attractive for them to bring M&A cases to court and the returns for plaintiff attorneys can also be considerable.

“The dramatic rise in M&A cases signals that this ‘new’ focus of litigation may be here for some time to come,” said Patricia Etzold, partner at PwC. “This is a real game changer for the advisors involved in these deals. Given the increase in M&A litigation at the federal and state court level, this may be a good time for companies to evaluate their M&A process and criteria for selecting advisors. In light of the uptick in cases, companies may need to factor litigation risk into the timeline and costs associated with any transaction.”

PwC also found that cases against Foreign Issuers (FIs), which increased by 126 percent in 2011, were dominated by companies based in China. The 37 FI cases filed against China-based companies in 2011 accounted for 61 percent of FI cases and 19 percent of total cases in 2011. The majority of cases filed were against China-based companies that entered the market through a reverse merger transaction, in which the China-based company merged with a publicly-traded U.S. shell company, as opposed to the traditional IPO process. China-based companies were also the target of 39 percent of accounting-related cases in 2011.

The number of cases settled in 2011 declined by 30 percent to the lowest level since 1999. A total of 69 settlements were reached in 2011, compared to a total of 99 in 2010. Conversely, the total value of settlements increased 17 percent from $2.9 billion in 2010 to $3.4 billion in 2011. Financial crisis-related settlements - totaling $2.6 billion - made up the majority of the total value of settlements.

PwC notes that 2011 saw a slight increase in the number of accounting-related cases, including an increase in those that allege inappropriate revenue recognition.  Also prevalent in accounting-related cases are allegations of a lack or failure of internal controls, cited in 62 percent of filings. 

“The increase in revenue recognition cases, combined with statements by the Enforcement Division of the SEC that revenue recognition is a priority area for 2012, is noteworthy.  Many of the accounting scandals following the turn of the century centred on inappropriate revenue recognition practices and fuelled large scale restatements, investigations and litigation,” said Neil Keenan, principal at PwC.

According to PwC, filings against financial services and health industries sank in 2011. For the first time since 2007, companies in the high-tech industry were named in more filings than those in the financial services industry, returning to pre-financial crisis levels. High-tech businesses were named in 23 percent of total filings, a 9 percentage point increase over 2010.

The number of filings with SEC or DOJ involvement increased from 34 cases in 2010 to 36 cases in 2011, remaining well below the heavy case volume that characterized 2007 and 2008 amid the financial crisis. During 2011, the SEC pursued an array of Dodd Frank whistleblower cases across sectors and borders, boosting enforcement actions by 8 percent from 2010 levels. This may be a precursor for further increases.

“Projecting the lessons of 2011 onto expectations for 2012 may be challenging as developments in international markets may change the litigation and enforcement landscape,” added Etzold. “The enactment of the UK Bribery Act and the recent ruling by the Netherlands Court of Appeal might signal that other countries will be following the United States’ lead in bribery enforcement and class action lawsuits. As these developments play out, it will be interesting to assess their impact on U.S. securities litigation. If history repeats, the rollercoaster ride that companies find themselves on will continue and accelerate.”

Other notable findings in the 2011 study include:

  • Circuits: The Second and Ninth Circuits continue to dominate, with the Ninth Circuit keeping the lead - For the second consecutive year, the single largest number of filings (54 filings or 28 percent of total filings) was recorded in the Ninth Circuit. This narrowly edged the Second Circuit (52 filings or 27 percent of total filings).
  • Directors and officers remain in the spotlight - The majority of 2011 federal filings continued to name as defendants members of the C-suite and senior management. CEOs (named in 86 percent of cases filed) and CFOs (named in 69 percent) are most frequently named. This represents a slight increase compared to the last two years.
  • A continued decrease in filings against Fortune 500 companies - In 2011, 12 percent of filings were directed at Fortune 500 companies, compared to 14 percent of filings in 2010. The percentage of 2011 filings approximated pre-financial-crisis levels.
  • Institutional investors lead the pack as lead plaintiffs – Thirty-eight percent of cases (72 filings) had an institutional investor assigned as the lead plaintiff, compared to 27 percent (52 filings) for private investors; 35 percent of cases have yet to declare a lead plaintiff.

“The economic cycle will come full circle as the economy continues to recover, stirring up the same motives, pressures, and incentives to engage in misconduct that have rendered businesses vulnerable since the earliest days of trade,” stated Keenan.  “The world has changed, but some things will remain the same. This time around, more eyes will be watching.” 

For more information about PwC’s Forensic Services Practice and for a full copy of the annual study, please visit       


The PwC Securities Litigation database contains shareholder class actions filed since 1994. The focus of this study is on all cases filed after passage of the Private Securities Litigation Reform Act. PwC tracks all cases filed and more than 50 data points related to each case, including court, circuit, company location, SIC code, class period, stock exchanges, GAAP allegations, earnings restatements, SEC investigations, DOJ investigations, and lead plaintiff type. PwC also analyzes a variety of issues, including whether the case is accounting-related, a breakdown of accounting issues, and settlement data. Sources include: case dockets, news articles, press releases, claims administrators, and SEC filings. Filings from 1996 onward occurred after the PSLRA of December 22, 1995; filings for 1999– 2011 occurred after the Securities Litigation Uniform Standards Act of November 3, 1998.

The year a case was filed is determined by the filing date of the initial complaint in state or federal court. Multiple filings against the same defendant with similar allegations are counted as one case.

Company names used to reference cases throughout this study are determined according to one of the following: (1) the first named defendant; (2) the company of the affected security or securities; and/or (3) the management company of the security or securities. All figures, except when noted, exclude “IPO laddering,” “analyst,” and “mutual fund” cases pertaining to the 2003/2004 “market timing” and “revenue sharing” cases.


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