Global SCA Rule 10b-5 Exposure of U.S. Public Companies Approached ~$140 Billion in 3Q’23. An increase of 11.8% relative to 2Q’23.i
SAR analyzed 46 U.S. public corporations that were sued for alleged violations of the federal securities laws under Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, promulgated thereunder (the “Exchange Act”) during 3Q’23.ii Our aggregate securities class action data analytics presented in this report exclude 2 securities claims filed this past quarter (see Appendix-1).
Global SCA Rule 10b-5 Exposure of U.S.-listed corporations amounted to $139.8 billion in 3Q’23, an increase of 11.8% from the last quarter’s global exposure of $125.1 billion. Approximately $5.1 billion, or 3.5% of plaintiffs' alleged market capitalization losses, do not surpass statistical thresholds of stock price reaction to support back-end price impact. The statistical thresholds affect the validity of back-end price impact and loss causation analyses. As a result, this estimate of investor plaintiffs’ alleged shareholder losses may not translate into potential aggregate damages that may be due to investors in common stock of the defendant companies.
Without discounting the effects of plaintiffs’ stock price impact and loss causation deficiencies in first-filed class action complaints, alleged shareholder market capitalization losses in 3Q’23 amount to $144.9 billion.
Global Securities Class Action Rule 10b-5 Exposure
U.S. SCA Rule 10b-5 Exposure of U.S. Issuers Increased ~12% to $130.5B in 3Q’23iii
SAR analyzed 44 U.S. issuers that were sued for alleged violations of the Exchange Act during 3Q’23.iv
U.S. SCA Rule 10b-5 Exposure of directors and officers of U.S. issuers to claims that allege violations of the Exchange Act amounts to $130.5 billion.v
Approximately $5.1 billion, or 3.8% of alleged market capitalization losses, do not surpass statistical thresholds of stock price reaction. Failure to surpass statistical thresholds of stock price reaction may invalidate investor plaintiffs' attempt to claim the corresponding market capitalization losses as shareholder damages. Without discounting the econometric deficiencies of plaintiffs’ alleged stock drops and related loss causation issues in first-filed class action complaints, alleged market capitalization losses against U.S. issuers in 3Q’23 amount to $135.6 billion.
Table 1: U.S. SCA Rule 10b-5 Exposure of U.S. Issuers
Aggregate Market Cap. of U.S.
$63,729,109
$188,408,425
$116,612,814
$130,528,521
$39,885,343,191
$42,114,353,122
$45,185,415,961
[4] The ratio of U.S. SCA Rule 10b-5 Exposure to the aggregate market cap of U.S. issuers ([4] = [2] / [3]).
[5] = Number of defendant U.S. issuers divided by the aggregate number of U.S. issuers.
Frequency of filings based on cases analyzed by SAR increased by 16% in 3Q’23 relative to 2Q’23.
U.S. SCA Rule 10b-5 Exposure increased by this data 11.9% relative to 2Q’23. 3Q’23 exhibits the fourth greatest quarterly exposure from U.S. issuers since SAR began tracking this data in the latter half of 2018.
The U.S. SCA Rule 10b-5 Exposure Rate increased by 2 basis points in 3Q’23 to 0.28%. The U.S. SCA Rule 10b-5 Litigation Rate increased by 16 basis points, from 0.93% in 2Q’23 to 1.09% in 3Q’23.
Table
2: Summary of Residual Stock Price Reaction of Plaintiffs’ Alleged Corrective Disclosures
U.S. Issuers
[1] Identified and analyzed first-filed SCA complaints that allege violations of Rule 10b-5. Excludes non-U.S. issuers that trade through ADRs.
The
The
total number of alleged corrective disclosures. ([4] = [3] / [2])
During 3Q’23, SAR analyzed 52 first-filed “stock-drop” SCAs filed against U.S. issuers that allege violations of Rule 10b-5 via 114 claimed corrective events or truth-revealing disclosures.vi After analyzing and consolidating cases with seemingly related allegations against individual U.S. issuers, SAR accounted for and analyzed 44 filed SCAs. A total of 94 corrective disclosures have been alleged in the 44 first-filed SCAs.vii
The number of alleged stock drops increased from 73 in 2Q’23 to 94 in 3Q’23, an increase of 29%. During 3Q’23, investor Plaintiffs alleged, on average, 2 corrective disclosures per first-filed SCA complaint. Of the 94 corrective disclosures alleged during 3Q'23, the allegedly related residual stock price decline of 16 (17%) of them may not translate into aggregate shareholder damages. Corrective disclosures may not warrant inclusion in a certified class when they do not surpass statistical thresholds of stock price reaction at the 95% confidence
standard. Failure to surpass this statistical threshold weighs negatively for investor Plaintiffs seeking to prove price impact.viii
17% of investor Plaintiffs’ alleged stock drops in the sample of first-filed class action complaints also run afoul of the heightened pleading standards of loss causation. They lack statistical significance at the 95% confidence standard to merit potential aggregate shareholder damages after excluding non-company and non-fraud related information. They lack statistical significance at the 95% confidence standard after excluding non-fraud and extraneous factors to merit potential shareholder recoveries due to the alleged fraud ix
The Bottom Line: The value of econometrically deficient stock drops that are alleged as shareholder damages by investor plaintiffs, amounts to $5.1 billion in market capitalization losses x
SCA RULE 10b-5
BY INDUSTRY SECTOR FOR U.S. ISSUERS
The Top Three Industries Impacted by Rule 10b-5 Exposure in 3Q’23
Out of the 44 SCAs analyzed in 3Q’23, 8 (or 18%) were filed against Pharma/ Biotech companies, 6 (or 14%) against Manufacturing, Farm, and Industrial companies, and 5 (or 11%) against F.I.R.E. companies. The industries impacted most by the related Rule 10b-5 SCA Exposure are Manufacturing, Farm, and Industrial (13%), Pharma/Biotech (16%), and Telecom (26%), which collectively accounted for 55% of aggregate U.S. SCA Rule 10b-5 Exposure in 3Q'23.
Data and analyses indicate that the industry sectors that were impacted most by plaintiffs’ alleged market capitalization losses that may not translate into alleged aggregate shareholder damages were the Media and Telecom companies (9%, respectively) and F.I.R.E companies (5%). In aggregate, $5.1B, or 3.8%, of claimed market capitalization losses may not translate into potential shareholder damages due to econometric deficiencies of back-end price impact and potential loss causation failures.
Table 3: U.S. SCA Rule 10b-5 Exposure by Industry Sector in 3Q’23
SCA RULE 10B-5
Top Three Industry Sectors with Greatest Accumulation of SCA Rule 10b5 Loss Severity
SCA loss severity analyses indicates that Software, Pharma/Biotech, and F.I.R.E., are the three industry sectors that carry the greatest amount of potential Rule 10b-5 settlement losses over a 5-year period ending on 3Q’23. Data and analyses based on claim-specific event study analyses on first-filed SCA complaints indicates that a total of 136 active Rule 10b-5 SCAs amount to $750 billion in alleged market capitalization losses.
Independent, claim-specific quantitative analyses on these 136 open SCAs indicate that such exposure may potentially amount to $183.8 billion in investor plaintiffs' alleged aggregate shareholder damages. The application of empirically derived SCA Rule 10b-5 settlement rates over the preceding 5-year period indicate that this quantum may potentially translate into $6.5 billion of potential liability in the form of settlements with certified claimants.
[1] Identified and analyzed first-filed SCA complaints that allege violations of Rule 10b-5. Excludes cases against non-U.S. issuers that trade on U.S. exchanges through ADRs. Includes only SCA complaints filed after June 2018 and excludes all dismissed, settled, and cases not analyzed by SAR.
[2] U.S. SCA Rule 10b-5 Exposure is equal to investor plaintiffs alleged market cap. losses that exhibit statistically significant residual returns at the 95% confidence standard during a close-to-close event window during the corresponding alleged corrective disclosures.
[3] Aggregate estimated projection of potential Rule 10b-5 settlement losses based on the application of severity-banded median settlement rates to each claim-specific Estimate of Maximum Potentially Available Rule 10b-5 Aggregate Damages. $0
$6,000
Note: These estimates of accumulated Rule 10b-5 loss severity on open SCAs are based on the allegations presented in the first-filed complaints and may vary from those derived from the operative pleadings. The estimates also exclude additional potential settlement losses for the cohort of claims that have tag along shareholder derivative claims.
Table 4: Accumulated Rule 10b-5 Loss Severity on Open SCAs Over a 5-Year Period
SCA RULE 10b-5 EXPOSURE OF U.S. LARGE CAP CORPORATIONSxi
SCA Rule 10b-5 Exposure of U.S. Large Caps Caps increased by 7.4% to $118.5B in 3Q’23.
U.S. Large Cap SCA Rule 10b-5 Exposure increased 7.4% relative to 2Q’23, amounting to $118.5B. Our estimate of litigation frequency against large caps also increased substantially from 1.52% in 2Q’23 to 2.49% in 3Q’23.
The average aggregate market capitalization of U.S. large cap corporations, based on the market capitalization range of the S&P 500 Index during 3Q’23, was ~$44.1 trillion xii This is an increase of ~2.3% relative to 2Q’23.
Large Cap SCA Rule 10b-5 Exposure Rate increased by 1 basis point to 0.27% in 3Q’23 – a small increase relative to 2Q’23.
The Large Cap SCA Rule 10b-5 Litigation Rate increased substantially to 2.49% in 3Q’23, an increase of 97 basis points.
The return of the S&P 500 Index between June 30, 2023, and September 30, 2023 was -3.27%.
Large Cap SCA Rule 10b-5 Exposure
$118.5B 3Q’23
Large Cap SCA Rule 10b-5 Exposure Rate Relative to2Q’23
$8.2B 7.4%
Large Cap SCA Rule 10b-5 Litigation Rate
2.49% 3Q’23 0.27% 3Q’23
3Q’23
U.S. Large Cap Analysis: U.S. Large Cap SCA Rule 10b-5 Exposure in 3Q’23 was the fourth greatest amount since SAR began tracking this data in 2018. Our data and analysis indicate that both the Rule 10b-5 Exposure and Litigation Rate(s) of U.S. Large Caps increased in 3Q’23 relative to the preceding quarter.
Table 5: Large Cap SCA Rule 10b-5 Exposure of U.S. Issuers
$37,628,660,129
$39,951,476,017
$43,066,692,153
SCA RULE 10b-5 EXPOSURE OF U.S. MID CAP
Cap SCA Rule 10b-5 Exposure
$9.6B 3Q’23
SCA Rule 10b-5 Exposure of U.S. Mid Caps Caps increased by ~140% relative to 2Q’23 to $9.6B.
Seven mid cap corporations were sued for alleged violations of Rule 10b-5 during 3Q’23 – 2 fewer than the number of U.S. issuers sued in this cohort during the previous quarter. Despite the decrease in the number of suits, Mid Cap SCA Rule 10b-5 Exposure in 3Q’23 increased by ~140.8% relative to 2Q’23, amounting to $9.6B.
The average aggregate market capitalization of U.S. mid cap corporations, based on the market capitalization range of the S&P MidCap 400 Market Index during 3Q’23, was $1.4 trillion, essentially the same as in the prior quarter.xiv
Mid Cap SCA Rule 10b-5 Exposure Rate increased by 41 basis points relative to 2Q’23, amounting to 0.70%. The Mid Cap Rule 10b-5 Litigation Rate decreased in 3Q’23 to 1.12%, a decrease of 35 basis points relative to 3Q’23.
The return of the S&P MidCap 400 between June 30, 2023 and September 30, 2023 was -4.2%.
Cap SCA Rule 10b-5 Exposure Rate
0.70% 3Q’23
1.12% 3Q’23
3Q’23 U.S. Mid Cap Analysis: U.S. Mid Cap filing frequency increased along with the Mid Cap SCA Rule 10b-5 Exposure Rate in 3Q’23. The Mid Cap SCA Rule 10b-5 Exposure of 9.6B during 3Q’23 is ~140.8% higher than it was in 2Q’23.
Table 6: Mid Cap SCA Rule 10b-5 Exposure of U.S. Issuers
SCA RULE 10b-5 EXPOSURE OF U.S. SMALL CAP CORPORATIONSxv
SCA Rule 10b-5 Exposure of U.S. Small Caps Caps increased by ~5% relative to 2Q’23 to $2.4B.
Filing frequency in 3Q'23 against U.S. Small Caps, according to the number of cases analyzed, decreased relative to 2Q'23 with 12 corporations sued for alleged violations of Rule 10b-5. The Small Cap SCA Rule 10b-5 Exposure in 3Q’23 amounted to $2.4B, which translates to an increase of 5% relative to 2Q'23.
The average aggregate market capitalization of U.S. Small Caps corporations, based on the market capitalization range of the S&P SmallCap 600 Market Index during 3Q’23, was $854B, an increase of about 18.7% relative to 3Q’23.xvI
In 3Q’23, the Small Cap SCA Rule 10b-5 Exposure Rate was 0.28%, which is 3 basis points lower than in 2Q’23. The Small Cap Rule 10b-5 Litigation Rate decreased by 6 basis points to 0.50%.
The return of the S&P SmallCap 600 Index between June 30, 2023 and September 30, 2023 -4.93%.
3Q’23 0.28% 3Q’23
3Q’23 U.S. Small Cap Analysis: Small Cap SCA Rule 10b-5 Exposure and filing frequency moved in opposite directions during 3Q’23, relative to 2Q’23. While Small Cap SCA Rule 10b-5 Exposure increased by 5%, filing frequency decreased by two. Taking into account the increase of ~18.7% in aggregate market capitalization of U.S. Small Caps, the quarterly Small Cap SCA Rule 10b-5 Exposure Rate decreased to .28%.
Table 7: Small Cap SCA Rule 10b-5 Exposure of U.S. Issuers
According to the cases analyzed, two non-U.S. issuers that trade on U.S. exchanges through ADRs were sued for alleged violations of the Exchange Act during 3Q’23.xviii
ADR SCA Rule 10b-5 Exposure of directors and officers of non-U.S. issuers to claims that allege violations of the Exchange Act amounted to $9.3B.xviii Interestingly, the material decrease in filing frequency in 3Q'23 was accompanied by a notable increase in ADR SCA Rule 10b-5 Exposure
Each of the 2 tracked SCA claims only had a single alleged corrective disclosure, and each alleged stock drop surpassed statistical thresholds of stock price reaction at the 95% confidence standard. The last quarter in 2022 was the only other instance when all of the alleged stock drops against non-U.S. Issuers surpassed statistical thresholds of stock price reaction.
In 3Q’23, the ADR SCA Rule 10b-5 Exposure Rate held steady at 3 basis points. The ADR SCA Rule 10b-5 Litigation Rate decreased from last quarter, to 0.1%. This rate is based on the number of nonU.S. issuers that trade in the NYSE, NASDAQ, and over-the-counter in the U.S.
ADR SCA Rule 10b-5 Exposure
The ADR SCA Rule 10b-5 Exposure Exposure of non-U.S. Issuers in 3Q’23 amounts to $9.3 billion, an Increase of ~10% Relative to 2Q’23.xvii $9.3B 3Q’23
3Q’23 ADR Analysis: Frequency of Rule 10b-5 SCAs against non-U.S. issuers decreased to two in 3Q’23. The related Rule 10b-5 SCA exposure of the two defendant firms amounts to ~$9.3 billion, a notable increase of 10% relative to 2Q’23.
Table 9: Summary of Residual Stock Price Reaction to Plaintiffs Alleged Corrective Disclosures of Non-U.S. Issuers
[1] First-filed and analyzed SCA complaints that allege violations of Rule 10b-5 against non-U.S. issuers that trade on U.S. exchanges through ADRs. Excludes U.S. issuers.
[2] The total number of alleged corrective disclosures identified in the sample of SCA complaints.
[3] The total number of alleged corrective disclosures that do not exhibit a statistically significant one-day residual stock price return at the 95% confidence standard.
[4] The ratio of the number of alleged corrective disclosures that do not exhibit a statistically significant one-day residual stock price return at the 95% confidence standard to the total number of alleged corrective disclosures. ([4] = [3] / [2]).
EMPIRICAL ANALYSIS OF SETTLEMENT AMOUNTS TO RULE 10b-5 AGGREGATE DAMAGES
Empirical Results of SAR Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages
The results of our on-going independent, empirical analyses on SCA Rule 10b-5 settlements indicates that SAR’s Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages continue to be statistically robust determinants of potential settlement amounts using a single explanatory variable.
Our empirical results demonstrate that our Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages (calculated around the time when the corresponding securities class action complaints are filed) alone explains ~54% of the variation in settlement amounts in simple univariate regressions xx Our results exhibit highly significant coefficient estimates indicating that a ~10% increase in potential aggregate damages predicts a ~5.5% increase in the settlement amount. These results are robust and significantly more accurate than proxy-style damages estimates.xxi A proxy for damages claimed by investor plaintiffs may not be an accurate determinant in predicting Rule 10b-5 settlement outcomes because it does not apply the court-accepted event study methodology to effectively compute potential damages per share on a claim-specific basis.
Rule 10b-5 Settlements to Max. Potential Damages
When we add additional controls for the U.S. exchange, circuit court, and the plaintiff firm that represents the lead plaintiff, our Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages can explain ~82% of Rule 10b-5 settlement variation as reported by the R-squared measure, and ~69% by the adjusted R-squared measure, with the damage’s coefficient indicating that a 10% increase in estimated damages predicts a ~4.2% increase in the settlement amount.
Based on our robust empirical results on 154 settled Rule 10b-5 SCAs filed since June 2018, we computed the median settlement rates by taking the median quotient of claim-specific settlement amounts (as reported by Institutional Shareholder Services Securities Class Action Services) and our proprietary estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages.
SAR estimates and tracks quarterly Rule 10b-5 Exchange Act median settlement rates to estimate more accurate potential settlement losses on a claim-specific basis. Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages are categorized into severity bands based on the magnitudes of claim-specific severity. The six severity band ranges are based on SAR’s clustering analyses of our aggregate severity data and the relative frequency of complaints according to magnitude of potential estimated shareholder damages. The median settlement ranges of the bands are statistically distinct.
We expect to further refine and add severity band ranges as our ratio population of settlement dollars to our Rule 10b-5 damages estimates expands and our statistical clustering analysis indicates meaningful distinction.
Securities Class Action Settlement Rates
Sources: S&P Global Market Intelligence, S&P Dow Jones Indices, Thomson Reuters, SAR SCA Platform as of September 30, 2023.
Any reprint of the information or figures presented in this quarterly report should reference SAR. Please direct any technical inquiries to Stephen Sigrist, SVP of Data Science, at 202.891.3652 or stephen@sarlit.com.
SAR is a pioneer in public company risk management data analytics solutions. The company relies on specialized data science and court-approved methodologies to quantify the securities litigation risk of U.S. and non-U.S. issuers listed on the NYSE and NASDAQ.
iGlobal SCA Rule 10b-5 Exposure amounts to the sum of U.S. Rule 10b-5 Exposure and ADR Rule 10b-5 Exposure estimates.
iiThis tally accounts for U.S. issuers of common stock and non-U.S. issuers that trade on U.S. exchanges through ADRs that are listed as defendants in first-filed SCA complaints filed during the third quarter of 2023 and allege shareholder damages. It also accounts for claims against such issuers in which Rule 10b-5 allegations were first made in amended filings during 3Q’23. A corporation that was sued a second or third time during the current quarter in non-amended filings is not accounted for in the current quarter’s tally. The tally excludes SCA complaints that were identified but not analyzed per Appendix-1.
iiiFigures of Securities Class Action (SCA) Rule 10b-5 litigation exposure are based on identified and analyzed first-filed complaints for each claim filed during the corresponding quarter. They also include claims in which Rule 10b-5 allegations were first made in amended filings during the corresponding quarter. All federal SCA complaints are read by full-time human employees of SAR and screened for allegations that specifically allege violations of Rule 10b-5, define a specific Class Period, identify specific alleged misrepresentations, and allegedly related corrective disclosures. Proprietary non-ML and non-AI cloud-based technology is utilized and relied upon to capture, categorize, and database select constituent data components from each individual SCA complaint. Only the claimed stock price declines presented in the first-filed complaint against each defendant company are accounted for to estimate U.S. SCA Rule 10b-5 Exposure in this report. Measures of SCA exposure for each claim may increase or decrease as the case progresses through the class action life cycle. For purposes of this quarterly informative report, SCA Rule 10b-5 Exposure is not amended retroactively for cases that have been dismissed by the Court or voluntarily dismissed by plaintiffs.
ivThis tally accounts for U.S. issuers of common stock that are listed as defendants in first-filed SCA complaints filed during the third quarter of 2023 and allege aggregate shareholder damages. It also includes claims in which Rule 10b-5 allegations were first made in amended filings during 3Q’23. A U.S. issuer of common stock that was sued a second or third time during the current quarter in non-amended filings is not accounted for in the current quarter’s tally. The tally excludes SCA complaints against U.S. issuers of common stock that were sued for alleged violations of the federal securities laws in a previous quarters. The tally also excludes cases that have been filed against international corporations that are listed on U.S. exchanges through American Depositary Receipts (ADRs). The tally excludes SCA complaints that were identified but not analyzed per Appendix-1 vA public corporation’s exposure to alleged violations of Rule 10b-5 is estimated by tracking the cumulative decline in market capitalization during a single market trading session (close-to-close event windows) that correspond with the timing of the claimed alleged corrective disclosures that surpass statistical thresholds of indirect price impact at the 95% confidence standard and are presented in a first–filed SCA complaint. See, Halliburton III 309 F.R.D. 251 (N.D. Tex. July 25, 2015) and Exxon 2023 WL 5415315 (N.D. Tex. Aug. 21, 2023). This figure excludes market capitalization declines of non-U.S. issuers that have been sued for alleged violations of the U.S. federal securities laws and trade on U.S. exchanges through American Depositary Receipts (ADRs).
viSAR relies on Docket Alerts and Court Wire notifications obtained from Thomson Reuters Westlaw. SAR professionals actively monitor and track case dockets to obtain newly filed and amended SCA complaints.
viiThis tally of alleged corrective disclosures includes those from SCA complaints first-filed in 3Q’23 and amended filings in which Rule 10b-5 allegations were first made in 3Q’23 against U.S. issuers of common stock. The tally excludes SCA complaints against companies for which there are relevant first-filed complaints in prior quarters.
viiiSee, Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398 (2014); Erica P. John Fund, Inc. v. Halliburton Co., 309 F.R.D. 251 (N.D. Tex. 2015); Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, 141 S. Ct. 1951 (2021); Arkansas Teacher Retirement System v. Goldman Sachs Group, Inc., 77 F.4th 74 (2d Cir. 2023).
ixSee, Dura Pharmaceuticals, Inc. v. Broudo, No. 03-932, 2005 WL 885109 (2005).
x A single-firm multivariate regression analysis with a minimum of 100 observations (if a full 252 observations is unattainable) for a Control Period is applied to evaluate the statistical significance of the logarithmic residual stock price decline on the trading day(s) affected by an alleged corrective disclosure(s) (or the alleged adverse event). Statistical significance is measured by computing the t-statistic of the residual stock price decline during the single close-to-close trading session that is affected by the alleged corrective and/or truth-revealing information. The Control Period ends one trading day prior to the start of the Class Period presented in the corresponding SCA complaint. Due to the proliferation of Rule 10b-5 claims made against companies involved in recent SPAC transactions, beginning in 2Q’21, a single-firm multivariate regression analysis is performed when sufficient pricing observations are available to support an adequate Control Period. If there are between 50 and 100 closing stock price observations before the first alleged corrective disclosure, the SVP of Data Science determines whether the raw data sample is sufficiently robust to perform a multivariate regression analysis that surpasses econometric quality controls standards of SAR.
xiLarge cap corporations are the sub-set of defendant corporations that have market capitalizations within the range of the greatest and least market capitalization value of the constituent members of the S&P 500 Market Index at the time of the start of the Class Period alleged in the first-filed complaint.
xiiThis is the average total market capitalization of U.S. issuers of common stock that are listed on the NYSE or Nasdaq exchanges with market capitalizations greater than $3.7 billion July 1st, 2023, and October 1st, 2023.
xiiiMid cap corporations are the sub-set of defendant corporations that have market capitalizations within the range of the greatest and least market capitalization value of the constituent members of the S&P MidCap 400 Market Index at the time of the start of the Class Period alleged in the first-filed complaint.
xivThis is the average total market capitalization of U.S. issuers of common stock that are listed on the NYSE or Nasdaq exchanges with market capitalizations between $1.26 and $3.7 billion between between July 1st, 2023, and October 1st, 2023.
xvSmall cap corporations are the sub-set of defendant corporations that have market capitalizations within the range of the greatest and least market capitalization value of the constituent members of the S&P SmallCap 600 Market Index at the time of the start of the Class Period alleged in the first-filed complaint.
xviThis is the average total market capitalization of U.S. issuers of common stock that are listed on the NYSE or Nasdaq exchanges with market capitalizations less than $1.26 billion July 1st, 2023, and October 1st, 2023.
xviiFigures of ADR Securities Class Action (SCA) Rule 10b-5 Exposure are based on both first-filed and analyzed complaints for each claim filed during the corresponding quarter and claims in which 10b-5 allegations were first made in amended filings during the corresponding quarter.
xviii This tally includes both SCA complaints against non-U.S. issuers that trade on U.S. exchanges first-filed in the current quarter and claims in which Rule 10b-5 allegations were first made in amended filings during the current quarter. A non-U.S. issuer of ADRs that was sued a second or third time during the current quarter is not accounted for in the current quarter’s tally. The tally excludes SCA complaints that were identified but not analyzed per Appendix-1.
xixA non-U.S. issuer’s exposure to alleged violations of Rule 10b-5 is estimated by tracking the cumulative decline in market capitalization during open market trading sessions that correspond with the timing of the claimed alleged corrective disclosures that surpass statistical thresholds of indirect price impact and are presented in a first-filed SCA complaint.
xxThese results are based on a sample of 154 recently settled SCAs, and exclude settled SCAs that allege violations of both the Exchange Act and Securities Act. These specific performance metrics are based on log-log regressions that exclude the few settled cases for which Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages are zero, due to all of the alleged stock drops exhibiting a non-statistically significant residual stock price decline at the 95% confidence standard and greatly prohibiting the determination of back-end stock price impact, in accordance with the Supreme Court ruling, in Arkansas Teachers Retirement System v. Goldman Sachs, made effective June 21, 2021. Non log-log regressions that include these fully deficient securities claims that settled for a monetary sum perform similarly in terms of their explanatory power.
xxiThe applied methodology for accumulating maximum potential alleged artificial inflation that investors claim is embedded in the defendant’s price of common stock, is the industry-accepted constant dollar method. Aggregate market data supplied by S&P Global Market intelligence is used to compute an appropriate level of daily effective float by taking into consideration and accounting for the effects of insider holdings and short interest on a daily basis throughout the corresponding class period based on the allegations of the corresponding class action complaint. For purposes of this informative quarterly report, no reduction to issue-specific float is made to account for institutional investor trading volume that may not be affected by and during investor plaintiffs alleged class period. A refined estimate of effective float may be computed in a litigation-specific context to control for institutional holdings that may not warrant inclusion in the estimation of the defendant’s effective float for a more accurate estimation of Maximum Potentially Available Rule 10b-5 Aggregate Damages. An adjustment to exchange-reported trading volume is made to account for common stock traded by designated market-makers or broker dealers who are acting as market-makers. Other specific refinements to exchange-reported volume may be made in a litigation-specific context based on data attained through discovery, for example when tracing issues may be present. The estimation of allegedly damaged shares during the operative class periods are made by applying a pre-calibrated, and industry-accepted two-trader model with static model inputs for each of the respective investor cohorts. The use of an industry-accepted quantitative model is a widely accepted technique used in securities class action litigation by established Plaintiff and Defense experts to estimate the number of alleged and potentially damaged shares because class counsel may not have the ability to attain the entire universe of trading records of all participants in the market that bought and sold publicly traded common stock of the corresponding share class in the U.S.-listed company during investor plaintiffs alleged inflationary period. The Estimate of Maximum Potentially Available Rule 10b-5 Aggregate Damages is based on the attribution of 100% of the residual stock price decline for each alleged corrective disclosure that exhibited a statistically significant residual stock price decline at the 95% confidence standard and using a close-to-close, single trading session event window. Advanced refinements to control for volatility or heteroskedasticity during specific intervals during the alleged class period, may be made in a litigation-specific context. The limitation to maximum potentially attributable artificial stock price inflation that investor plaintiffs allege to be embedded in the price of common stock may be refined in litigation-specific circumstances based on the results of news discovery analyses to determine the magnitude of potential confounding information disclosed to participants in the market on the affected day. The Estimate of Maximum Potentially Available Rule 10b-5 Aggregate Damages applies Section 21D(e) of the Private Securities and Litigation Reform Act of 1995 (PSLRA) 90-day look-back limitation on damages on the final alleged corrective disclosure that exhibited a statistically significant residual stock price decline at the 95% confidence standard and using a close-to-close, single trading session event window. In a litigation-specific circumstance, the 90-day look-back limitation to aggregate damages may applied and extended on all surviving alleged corrective disclosures that may exhibit back-end price impact which may further reduce the Estimates of Maximum Potentially Available Rule 10b-5 Aggregate Damages.
Appendix-1: Rule 10b-5 Exchange Act Identified But Not Analyzed During The Third Quarter of 2023:
The following list comprises Rule 10b-5 Exchange Act SCAs filed during the third quarter of 2023 against U.S. issuers of common stock or ADRs but not analyzed by SAR due to two primary factors. Either there is insufficient pricing data to conduct a multivariate regression in accordance with SAR’s data analytics standards of quality control, and/or the securities claims allege potentially novel theories of Rule 10b-5 liability.
