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Securities Litigation Developments

January 31, 2017

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The field of securities litigation is continually evolving, and new developments in policy and regulation are constantly emerging. As securities markets become more interconnected, litigation and regulation also must adapt to the changing needs of investors and institutions. 

2016 was busy year, with a record high number of securities class actions filed. Securities and Exchange Commission enforcement proceedings were also at an all time high, with 868 cases filed. In addition to the growth in filing numbers, various developments emerged, many of which will continue to influence the securities litigation landscape in 2017 and beyond.

Notable Securities Litigation Developments from 2016

Insider Trading
In Salman v. U.S., the Supreme Court held that a gift of confidential information to a trading relative or friend may be sufficient to find insider trading liability. Liability may be found even if there is no exchange of something of pecuniary or similar value. The case does raise further questions, such as what constitutes a “close relationship,” and whether a relationship is sufficient to create a “benefit.” Future litigation will almost certainly address the issue of how far Salman will extend (if at all) beyond relatives and friends. 

Circuit Split on Whistleblower Protections
The U.S. Circuit Courts are currently split regarding the definition of a “whistleblower” under the Dodd-Frank Act. Narrow interpretations require the whistleblower to present their tips to the SEC prior to bringing a claim in order to benefit from Dodd-Frank protections; broader interpretations would not require such prior reporting. Other issues also need resolution, such as whether tips to government agencies besides the SEC would be sufficient to qualify as a whistleblower claim. The issue is likely ripe for review by the U.S. Supreme Court, as there has been a split between two federal courts of appeals. Several district courts have also found differently on the issue.

Securities Class Actions Against Smaller Companies
Other developments in the area of securities-related litigation include a distinct trend of securities class actions being brought against smaller public companies on behalf of investors in the retail sector. While larger law firms are still retaining institutional investor clients, smaller firms are gaining momentum in their involvement against smaller companies in cases with fewer investigative costs. This trend appears to have began around five years ago and may now represent an established phenomenon in the securities litigation landscape. 

Technology Issues
In the area of technology, there is a lack of major cybersecurity shareholder litigation cases, despite the occurrence of major security breaches in the last year. However, recent landmark data breach opinions, such as those in the Target and Wyndham cases, may provide continued clarification on victims’ rights in large-scale data breach cases. 

SEC News
Lastly, in SEC news, Chief of Staff Andrew J. Donohue and General Counsel Anne K. Small will be departing from the agency at the end of the month. Donohue served as Chief of Staff beginning in May 2015, while Small served as General Counsel since April 2013. Donohue’s replacement has yet to be announced; Sanket Bulsara, Deputy General Counsel for Appellate Litigation, Adjudication, and Enforcement, will become Acting General Counsel when Small departs. 

2016 Securities Litigation Statistics 

National Economic Research Associates Inc. (NERA) recently published their annual study, Recent Trends in Securities Class Action Litigation: 2016 Full-Year Review. Highlights of the 2016 calendar year report include:

  • A record 300 securities class actions were filed in U.S. federal courts for 2016. This is a 32% increase from the number filed in 2015. This growth can largely be attributed to merger-objection filings (88 cases).
  • 113 securities class actions were settled in 2016; this is the highest number recorded since 2011.
  • A near-record 149 securities class action cases were dismissed; this is the first time since the passage of the Private Securities Litigation Reform Act (PSLRA) that more securities class action cases were dismissed than settled.
  • A total of 262 securities class actions were fully resolved.
  • The average settlement amount for 2016 was over $72 million. This is up 35% from 2015, when the average settlement amount was $53 million.
  • The Health Technology and Services sector experienced the greatest number of class actions, with a total of 85 class action cases (28% of total filings). Filings in the finance sector comprised 16% of the total securities class action cases field in 2016.

Other federal securities filings in 2016 included cases involving fiduciary duty breaches, self-dealing by the management, violations of shareholder contractual rights, and other violations. 


These developments and statistics indicate that 2017 will likely be another busy year in securities litigation, as many unresolved issues need further elaboration. In particular, we expect to see more commentary on the insider trading provisions from the Salman case, as well as more securities class action filings in the health technology and services sector. 

If you have any questions, concerns, or disputes involving securities fraud litigation, contact us today at Kessler Topaz. We are a national leader in securities litigation in the U.S., as well as for shareholders in non-U.S. companies. We frequently take leadership roles on behalf of institutional investors across the world. Our team often pursues groundbreaking cases to make new loss recovery options available in different jurisdictions.