Securities class action filings involving tech companies declined in the first half of 2020, likely due to slowdowns associated with the COVID-19 pandemic.
Number of Federal and State Filings
- Tech company filing activity in H1 2020 declined from 2019, likely due to slowdowns associated with the COVID-19 pandemic.i
- State filings involving tech companies increased as a proportion of total filings in both state and federal courts, from 9 percent in 2017 to 18 percent in 2018 and 28 percent in H1 2020. This shift in filings from federal to state courts is likely a consequence of the U.S. Supreme Court’s 2018 ruling that confirmed state courts’ jurisdiction over 1933 Act claims.ii
- While the full impact of the COVID-19 pandemic on filing activity remains to be seen, there is potential for increased securities class action filings, including those against tech companies, based on the economic slowdown and operational issues associated with the pandemic.
- The market value of tech companies has moved in opposite direction to that of the overall market during the pandemic. While the S&P 500 declined by 4 percent during H1 2020, the Dow Jones U.S. Technology Index grew by 16 percent and the NASDAQ-100 Technology Sector Index grew by 9 percent.iii
Market Capitalization Losses for Federal and State Filings
Disclosure Dollar Loss Index® (DDL Index®)iv
- DDL is the dollar value change in the defendant firm’s market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period.
- The DDL of tech company filings plummeted in the first half of 2020, in sharp contrast with a two-year spike during 2018–2019.
- The decrease in DDL meant that cases filed in H1 2020 have had relatively small market capitalization losses. The DDL Index of tech company filings was slightly over $8 billion.
Maximum Dollar Loss Index® (MDL Index®)v
- MDL is the dollar value change in the defendant firm’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period.
- The MDL of tech company filings also fell sharply in the first half of 2020, reversing a previous trend of increases between 2017 and 2019.
- In H1 2020, the MDL Index of tech company filings was $33 billion.
- More than half of the MDL of tech company filings in H1 2020 stems from a single case in the Computers subsector: Electrical Workers Pension Fund, Local 103, I.B.E.W. et al. v. HP Inc. et al.
i The Stanford Law School Securities Class Action Clearinghouse, in collaboration with Cornerstone Research, has identified federal securities class action filings since January 1, 1996 (securities.stanford.edu). The analysis in this report is based on data identified as of July 27, 2020. Only core filings, which are all federal and state 1933 Act securities class actions excluding those defined as M&A filings, are considered in this report.
ii The U.S. Supreme Court ruled on March 20, 2018, in Cyan Inc. v. Beaver County Employees Retirement Fund that cases with 1933 Act claims may be brought to state venues and are not removable to federal court. See Cyan Inc. v. Beaver County Employees Retirement Fund, No. 15-1439, 583 U.S. ___ (2018), https://www.supremecourt.gov/opinions/17pdf/15-1439_8njq.pdf.
iii See “S&P 500 Index – Historical Quotes,” MarketWatch, https://www.marketwatch.com/investing/index/spx/historical; “Dow Jones U.S. Technology Index – Historical Quotes,” MarketWatch, https://www.marketwatch.com/investing/index/djustc/historical?countrycode=xx; “NASDAQ-100 Technology Sector Index,” Nasdaq, https://www.nasdaq.com/market-activity/index/ndxt/historical.
iv Disclosure Dollar Loss Index® (DDL Index®) measures the aggregate DDL for all federal and state filings over a period of time. DDL is the dollar value change in the defendant firm’s market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period. DDL should not be considered an indicator of liability or measure of potential damages. Instead, it estimates the impact of all information revealed at the end of the class period, including information unrelated to the litigation. In this report, the DDL Index of tech company filings only measures the aggregate DDL for core federal and state filings involving tech companies.
v Maximum Dollar Loss Index® (MDL Index®) measures the aggregate MDL for all federal and state filings over a period of time. MDL is the dollar value change in the defendant firm’s market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period. MDL should not be considered an indicator of liability or measure of potential damages. Instead, it estimates the impact of all information revealed during or at the end of the class period, including information unrelated to the litigation. In this report, the MDL Index of tech company filings only measures the aggregate MDL for core federal and state filings involving tech companies.
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