Trends in Canadian Securities Class
Actions: 2016 Update
Partial Rebound in Filings,
Few Settlements
By Bradley A. Heys and Robert Patton
» Includes a Summary of US Securities
Class Actions and UK Regulatory
Enforcement Trends
The number of filings of
Canadian securities class
actions rebounded in
2016, but was still below
the pace of filings in the
period from 2010 to 2014.
Trends in Canadian Securities Class Actions: 2016 Update
Partial Rebound in Filings, Few Settlements
By Bradley A. Heys and Robert Patton1
22 February 2017
Introduction
Filings of Canadian securities class actions more than doubled in 2016 compared to 2015 levels but were
still below the pace observed from 2010 through 2014. This contrasts with the trend in the US, where
2016 witnessed the highest number of securities class action filings since the aftermath of the early 2000s
dot-com crash.2
While some observers once anticipated that Canada would become a preferred venue for shareholder
class actions, the last two years may indicate otherwise. The recent slower pace of filings reverses the
upward trend following the introduction of secondary market civil liability at the end of 2005. It is
unclear whether this recent slowdown is being driven by higher expected costs and lower expected
payoffs for class counsel, or by fewer potential claims, or whether it is merely a transient phenomenon,
a possibility we discussed in our 2015 update.
This recent slowdown in Canadian filings comes even as US filings continue to trend upward. While
much of the recent growth in US filings stems from merger-objection cases (a type of claim that has
been absent from filings in Canada), filings of US class actions alleging violations of Rule 10b-5,
Section 11, and/or Section 12 have grown in each of the last four years and are at their highest level
since 2008.3
Although six Canadian securities class actions were resolved during 2016, only two of these were
resolved by way of a settlement, the lowest number since 2011. Three other cases were dismissed, and
one was discontinued. Coincidentally, 2016 was also the first year since 1995—when the US Private
Securities Litigation Reform Act (PSLRA) was passed—in which more US securities class actions were
dismissed than were settled.
As of 31 December 2016, there were 54 active securities class actions in Canada. Together, these active
cases represent more than $55 billion in claims. NERA’s database includes a total of 138 Canadian
securities class actions filed over the 20-year period from 1997 through 2016.
www.nera.com 1
Trends in Filings
There have now been a total of 76 cases with
secondary market civil liability claims filed under
amendments to the provincial securities acts
that began coming into force 11 years ago (i.e.,
“Statutory Secondary Market” cases). Of these,
34 cases (45%) remained unresolved at the end
of 2016. Defendants have agreed to pay a total
of more than $527 million to settle claims in
33 cases (including two partial settlements also
included in the count of unresolved cases). Eight
cases (10.5%) have been dismissed, and three
have been discontinued.
Nine new Canadian securities class actions were
filed during 2016—more than twice as many as
were filed in 2015 but still below the number
filed in each year between 2010 and 2014.
Of the 138 cases in our database, more than
two-thirds (95 cases) were filed from 2008
to 2016, while 82 cases (59%) were filed in
the seven-year period from 2008 to 2014
(see Figure 1).
Figure 1. Cases Filed by Year and Allegation Type
1997–2016
16
14
Other Responsible Issuer Case
Credit Crisis Case
Stock Option Manipulation Case
Ponzi Scheme Case
Investment Fund Case
Analyst Case
15
2
Statutory Secondary Market Case
13
Total: 138 Cases Filed
Number of Filings
12
12
12
1
1
2
11
1
10
10
2
9
8
2
1
9
2
11
7
1
6
6
9
1
8
5
5
10
7
5
2
4
7
1
4
5
4
2
3
1
3
3
5
6
2
2
1
1
2
4
2
4
4
3
1
2
2
2
3
2
1
0
2
2
1
2
2
2
2
1
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Filing Year
Note: “Responsible Issuer Case” refers to a case brought by investors in securities (e.g., common shares) issued by a Responsible Issuer as that term is defined in the
Securities Act (Ontario) and parallel legislation in other Canadian provinces. “Statutory Secondary Market” refers to a case brought under the continuous disclosure
provisions of the provincial securities acts. We report a single filing where multiple causes of action have been commenced in respect of substantially similar facts.
2 www.nera.com
Shareholder Class Actions
Each of the nine new cases filed in 2016 is a
class action brought on behalf of a class of
purchasers of the shares of a company listed on
a public stock exchange, as has been the case
for each new filing over the past five years (such
filings can be distinguished from other types of
securities class actions, including those involving
investment funds or Ponzi scheme claims).4
The securities class action litigation risk for
companies listed on Canadian securities
exchanges is substantially lower than the risk
of a federal securities class action for companies
listed on the major US securities exchanges.
Over the last six years (2011 through 2016),
a total of 44 securities class actions have
been filed in Canada involving Toronto Stock
Exchange (TSX)-listed companies, representing
approximately 2.9% of the average number
of companies listed over that period, which
equates to an average annual litigation risk of
approximately 0.5% (unchanged from 2014 and
2015).5 Over the same six-year period, claims
have been brought against nine companies
listed on the TSX Venture Exchange (TSX-V),
representing 0.4% of the average number of
TSX-V-listed companies, or an average annual
litigation risk of approximately 0.07% (also
essentially unchanged from the 0.06% we
reported for 2015 and the 0.07% reported
for 2014).6 In contrast, the probability of a
firm listed on one of the major US securities
exchanges facing a federal securities class
action suit under Rule 10b-5, Section 11, and/
or Section 12 (i.e., a “standard” securities class
action) averaged 3.1% annually from 2011
through 2016.7
Statutory Secondary Market Cases
Seven of the nine new cases filed in 2016 were
Statutory Secondary Market cases. As noted
above, there have been 76 such cases filed
through the end of 2016. The seven cases filed
in 2016 represent a reversal of the sharp drop
observed in 2015, which saw only four new
Statutory Secondary Market cases filed compared
to 11 in 2014. On the other hand, the total of
seven new filings is still lower than the level in all
but one year from 2008 through 2014. During
that period, nearly nine new Statutory Secondary
Market cases were filed on average per year
(see Figure 2).
Statutory Secondary Market Filings by
Market Capitalization of Issuers
The seven Statutory Secondary Market cases filed
in 2016 involve issuers with market capitalizations
ranging from $88 million to more than $21 billion
(as measured immediately prior to the beginning
of the proposed class period). Three cases involve
companies with market capitalizations greater
than $1 billion, and three involve companies with
market capitalizations between $100 million and
$1 billion. Only one of the seven cases involves a
company with a market capitalization of less than
$100 million (see Figure 3).
www.nera.com 3
Figure 2. Filings of Statutory Secondary Market Cases
2006–2016
12
Total: 76 Cases Filed
10
Number of Filings
8
6
11
9
10
9
4
8
8
7
6
2
4
3
1
0
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Filing Year
Figure 3. Number of Statutory Secondary Market Cases by Defendant Issuer’s Market Capitalization
As of the Last Trading Day Prior to the Beginning of the Proposed Class Period
12
10
Number of Filings
8
6
10
4
8
7
7
6
7
6
6
5
2
5
4
3
0
$0 $100
$100 $200
$200 $300
$300 $400
$100 Million Intervals
$400 $500
$500 $1,000
$1,000 $1,500
$1,500 $2,000
$2,000 $5,000
$5,000 $20,000
$20,000 $50,000
$50,000+
$500 Million Intervals
Market Capitalization of Defendant Issuer on the Last Trading Day Prior to the Proposed Class Period (CAD Millions)
Note: Figure shows data for 74 out of 76 Statutory Secondary Market cases where market capitalization data is available.
4 www.nera.com
Filings by Province
Filings of Canadian securities class actions
continue to be concentrated in Ontario, with six
of the nine cases in 2016 filed only in Ontario.
In past years, cases filed in provinces other than
Ontario have tended to include filings in more
than one province (often including Ontario).
However, each of the three cases filed outside
of Ontario in 2016 were filed only in one
province—two in Quebec (the cases involving
Amaya Inc. and Concordia International Corp.)
and one in Alberta (involving Strad Energy
Services Ltd.).
Historically, approximately 78% of all securities
class actions have involved a filing in Ontario,
and 28% have involved a filing in Quebec. Only
12% of all cases have not involved a filing in
either Ontario or Quebec (a majority of these
were filed in Alberta). Approximately 27% of all
cases have involved claims filed in more than
one province. This distribution of filings across
provinces has not changed substantially over
time (see Figure 4).
Figure 4. Distribution of Filings Across Provinces
1997–2005
Filed Outside
of Ontario
and Quebec
12%
Filed in Ontario
and Quebec
21%
Filed in Quebec
but not in Ontario
12%
Filed in Ontario
but not in Quebec
55%
2006–2016
Filed Outside
of Ontario
and Quebec
Filed in
12%
Quebec but
not in Ontario
10%
Filed in Ontario
and Quebec
16%
Filed in Ontario
but not in Quebec
62%
www.nera.com 5
Figure 5. Filings of Statutory Secondary Market Cases With and Without Parallel Filings in the US
2006–2010
17 Filings
With Statutory Secondary
Market Claims
Without Parallel Filings in
the US (63%)
10 Filings
With Statutory Secondary
Market Claims
With Parallel Filings in
the US (37%)
Cross-Border Cases
Six of the nine new Canadian cases filed in 2016
also involve parallel class actions filed in the US,
including those involving Nobilis Health Corp.,
Amaya Inc., Silver Wheaton Corp., Concordia
International Corp., Goldcorp Inc., and
Volkswagen AG. Of the 76 Statutory Secondary
Market cases brought to date, 34 cases (45%)
have involved parallel US class actions. The
proportion of Statutory Secondary Market cases
with a parallel US class action has grown over
time: for the five-year period from 2006 through
2010, 37% of these cases had a parallel US
filing; for the subsequent six-year period from
2011 through 2016, 49% of cases had a parallel
US filing (see Figure 5).
6 www.nera.com
2011–2016
25 Filings
With Statutory Secondary
Market Claims
Without Parallel Filings
in the US (51%)
24 Filings
With Statutory Secondary
Market Claims
With Parallel Filings in
the US (49%)
Five of the six cross-border cases filed in 2016
involve issuers with securities cross-listed
on both the TSX and one of the major US
exchanges (Nobilis Health Corp. and Goldcorp
Inc. are listed on the New York Stock Exchange
(NYSE); Amaya Inc., Concordia International
Corp., and Silver Wheaton Corp. are listed on
the NASDAQ). Interestingly, the case involving
Volkswagen AG represents the fifth Canadian
shareholder class action involving an issuer
whose securities were not listed on a Canadian
exchange, as class counsel continue to explore
the scope of the “responsible issuer” definition
in the provincial securities acts.8 These cases,
which relate to purchases of securities outside
of Canada, represent claims that would not be
permitted under US securities laws following the
Morrison v. National Australia Bank decision.
US Securities Class Actions Against
Canadian Companies
In addition to the six new cross-border cases
mentioned above, four other Canadiandomiciled companies were named in cases filed
only in the US during 2016. These include:
•
•
•
•
Neovasc Inc.,
ProNAi Therapeutics, Inc.,
Performance Sports Group Ltd., and
Primero Mining Corp.
Canadian law firms have indicated that they are
investigating whether to file claims in Canada
against at least one of these companies, but had
not yet filed a claim as of 31 December 2016.
As noted in our prior reports, approximately
half of all US filings against Canadian companies
since 2006 have been accompanied by
a corresponding parallel claim in Canada
(see Figure 6).
Figure 6. US Filings Against Canadian-Domiciled Companies by Year of US Filing
1997–2005
2006–2016
8 US Filings With
Parallel Canadian
Actions (16%)
41 US Filings Without Parallel
Canadian Actions (84%)
33 US Filings With Parallel
Canadian Actions (52%)
30 US Filings Without Parallel
Canadian Actions (48%)
Note: If multiple securities class actions with similar allegations are filed against a Canadian-domiciled company in US federal court we treat them as a single filing if in
the same circuit, and as separate filings if in different circuits. As a result, some US filings share the same parallel Canadian action. If similar class actions are filed
against a company in Canada, we treat them as single filing, whether they are in the same or different provinces.
www.nera.com 7
Industry Sectors
The nine new cases filed in 2016 involve
companies spanning a range of industries,
including Consumer Durables and Services,
Health, Technology, and Non-Energy Minerals.
None involves a company in the financial
services sector, continuing a downward trend
in such cases observed last year. Indeed,
cases involving companies in the financial
sector (excluding claims against companies
that provided financial services to reporting
issuers) have declined in the last seven years—
approximately 14% of new filings between
2010 and 2016 involved an issuer in the finance
industry, compared to 31% of new filings from
1997 to 2009.
Filings of Canadian securities class actions by
industry sector for 1997–2009 and 2010–2016
are illustrated in Figure 7.
Three of the nine new cases filed in 2016
(33%) involve companies in the Non-Energy
Minerals (mining) sector. This is consistent with
another trend we observed last year, namely
that an increasing proportion of new cases
involve companies in the minerals sectors (both
Energy and Non-Energy Minerals). Since 2010,
approximately 42% of all cases have involved
companies in these sectors, compared to
approximately 23% of cases filed between 1997
and 2009.
Figure 7. Filings by Industry Sector
1997–2009 and 2010–2016
2010–2016: 74 Cases Filed
1997–2009: 64 Cases Filed
31 (41.9%)
Energy and Non-Energy Minerals
15 (23.4%)
10 (13.5%)
Finance
20 (31.3%)
7 (9.5%)
Commercial and Industrial Services
2 (3.1%)
6 (8.1%)
Electronic Technology and Technology Services
3 (4.7%)
5 (6.8%)
Health Technology and Services
2 (3.1%)
4 (5.4%)
Consumer Durables Non-Durables
5 (7.8%)
3 (4.1%)
Producer Manufacturing
4 (6.3%)
8 (10.8%)
Other
13 (20.3%)
0
5
10
15
20
25
Number of Filings
Note: Cases are coded based on the industry sector for the issuer of the securities that is the subject of the litigation. Industry classification from FactSet.
8 www.nera.com
30
35
Time to Filing
Four of the nine cases filed during 2016 were
filed within four months of the end of the
proposed class period, consistent with the
median time to filing for cases filed in the last
10 years (since 2007). Two of the nine new
cases were filed between five and nine months
after the end of the proposed class period, two
were filed between 10 and 16 months after the
end of the proposed class period, and one was
filed 2.5 years after the end of the proposed
class period. The median time to filing across
all eight cases was 4.4 months—slightly longer
than the median time to filing for cases filed
from 2011 to 2015 (see Figure 8).
Figure 8. Median Time to Filing From the End of the Proposed Class Period
2003–2016
14
Median 2003–2006:
6.2 Months
10
Class Period and Filing of Action
Median Number of Months Between End of Proposed
12
Median 2007–2016:
3.8 Months
8
Median 2011–2015:
3.4 Months
13.3
6
9.9
9.7
8.6
4
6.0
5.0
2
5.7
4.4
4.3
2.8
3.2
3.0
2012
2013
3.2
0.9
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2014
2015
2016
Filing Year
Note: Based on 112 cases filed from 2003 through 2016 for which we know both the filing date and the end date of the proposed class period.
www.nera.com 9
Trends in Resolutions
Settlements
Two Canadian securities class actions were
settled (or tentatively settled) during 2016—the
cases involving Penn West Petroleum Ltd. and
RB Energy Inc. (formerly known as Canada
Lithium Corp.). This is the lowest number of
settlements in any calendar year since 2011.
The number of settlements by year is illustrated
in Figure 9 below.
The two cases that settled in 2016 involved
Statutory Secondary Market claims. Defendants
in the case involving Penn West Petroleum
Ltd. agreed to settle both Canadian and
US class actions for $53 million, to be split
equally between the Canadian and US classes.
Defendants in the case involving RB Energy Inc.
agreed to pay $0.4 million, all of which was to
be paid to class counsel.
Figure 9. Settlements by Year
2001–2016
9
8
7
Number of Settlements
6
5
4
8
7
7
3
6
6
5
5
2
3
3
1
3
2
1
2
2
1
0
2001
2002
2003
2004
2005
2006
2007
2008
2009
Settlement Year
10 www.nera.com
2010
2011
2012
2013
2014
2015
2016
Our database now includes settlement
amounts for 59 of the 62 settlements in
Canadian securities class actions (excluding
partial settlements) from 1997 through 2016
(information regarding settlement amounts
in three cases is not publicly available). The
average settlement across these 59 cases is
$70.4 million—a figure heavily skewed by two
exceptionally large settlements, both relating to
Nortel Networks Corp., as we have noted in
our prior reports. The median settlement is
$11.4 million.9 In US dollar terms (converted
at the exchange rate at the time of each
settlement), the median settlement from
2007 through 2016 was US$11.9 million.
This compares to a median settlement in US
securities class actions of US$9.1 million over
the same period (see Figure 10).
Figure 10. Median Settlement Amount in Canadian Securities Class Actions by Year
2001–2016
$70
$64.5
Median Settlement Amount (CAD Millions)
$60
$50
$42.9
$40
$30
$29.3
$28.0
$26.7
Median 2007–2016:
$12.5 Million
(US$11.9 Million)
$20.0
$20
$13.8
$10.0
$10.6
$9.9
$9.3
$10
$11.0
$8.4
$6.1
$2.0
$0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Settlement Year
www.nera.com 11
There have been 31 settlements of Statutory
Secondary Market cases. The average settlement
in these cases is $11.7 million, and the median
is $9.0 million. The average settlement as a
percentage of claimed compensatory damages
in these cases is 12.6%, and the median is
8.0%. As we have noted previously, average and
median settlements as a percentage of claimed
damages are potentially interesting as a measure
of the outcome of a case relative to the initial
claim, but they may not fairly reflect the level of
recovery of any actual potentially compensable
losses incurred by plaintiffs. Estimates of
aggregate damages to the class (which are often
prepared by experts in these cases subsequent
to the filing of a claim but generally not made
public) may differ significantly from the claimed
damage amounts set out in a statement
of claim.
Cross-Border Settlements
In 2016, the only cross-border settlement
involved Penn West Petroleum Ltd. Historically,
of the 31 Statutory Secondary Market cases that
have settled, 20 were domestic-only cases and
11 were cross-border cases (in all cases with
claims filed in the US as well as Canada). The 20
domestic-only cases settled for an average value
of $6.2 million, representing 12.1% of claimed
compensatory damages. The median of these
20 settlements is $3.9 million, or 7.4% of
claimed damages.
Cross-border Statutory Secondary Market cases
tend to settle for higher amounts than do their
domestic-only counterparts. On average, such
cases settled for $21.9 million (the median is
$15.9 million), including the US component of
the settlement. This is more than three times the
typical settlement in domestic-only cases. Across
the 11 cross-border Statutory Secondary Market
cases, settlements average 13.6% of claimed
compensatory damages (the median is 10.6%).
12 www.nera.com
Settlements Before and After Leave
and Certification
Of the 31 settlements of Statutory Secondary
Market cases, eight (26%) were certified and
granted leave prior to settlement. Defendants in
those eight cases agreed to pay an average of
$9.1 million, and the median settlement across
these cases is $10.0 million.10 This compares to
an average settlement of $13.6 million (median
of $7.1 million) across 19 cases which were
settled prior to certification (i.e., were certified
for the purposes of settlement).11
Dismissals and Discontinued Cases
Three Canadian securities class actions were
dismissed during 2016—those involving Eastern
Platinum Ltd., Martinrea International Inc., and
Celestica Inc.12
Of the 138 securities class actions filed since
1997, 17 (12.3%) have been dismissed as
of the end of 2016. Of the 76 Statutory
Secondary Market cases, eight (10.5%) have
been dismissed so far. In the US, dismissal
rates have been substantially higher: about
a third of cases filed from 2000 to 2002 were
dismissed, 42% to 47% of cases filed between
2003 and 2007 were dismissed, and about half
of cases filed between 2008 and 2011(the most
recent years with a substantial resolution rate)
were dismissed.
One Canadian securities class action was
discontinued during 2016: a case involving
BCE Inc.
Pending Cases
Number of Pending Cases
At the end of 2016, 54 Canadian securities class
actions remained unresolved—three more than
at the end of 2015, but well below the annual
peak of 61 cases at the end of 2014. These 54
active cases are still more than two times the
number of active cases at the end of 2008
(see Figure 11).
Figure 11. Cases Pending as of 31 December13
1997–2016
60
50
Number of Pending Cases
40
61
30
56
52
51
54
46
20
35
26
21
10
21
28
22
16
1
6
8
11
10
10
11
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
As of 31 December
Note: Cases that are initially dismissed but subsequently overturned on appeal are shown as pending at each year-end since the date of initial filing. Cases that have been
dismissed are not included among the pending cases from the year of the initial dismissal decision, even if they may be still subject to appeal.
www.nera.com 13
The 54 unresolved cases pending at the end
of 2016 represent more than $55 billion in
claims, including both compensatory and
punitive damages. Eight of these cases alone
account for more than 90% of the total
amount of claims. All but five of these 54
cases were filed in 2007 or later.14
Among those cases filed from 1997 to 2005,
82% of the resolved cases were settled. Among
the cases filed from 2006 to 2016 and resolved
as of the end of 2016, only 70% were resolved
by way of settlement—although this statistic
may change as more of the currently active
cases are resolved. For example, if all of the
currently active cases ultimately are settled, the
proportion of cases settling would be relatively
constant over time. The status of the cases
filed in each year from 1997 through 2016 is
indicated in Figure 12 below.
Figure 12. Status of Cases at 2016 Year-End by Filing Year
1997–2016
16
Active
15
Dismissed
Discontinued
14
Settled
13
Total: 138 Cases Filed
12
12
12
2
Number of Filings
7
11
1
10
10
9
9
5
4
7
8
2
4
1
7
1
6
6
5
5
3
2
1
3
2
2
4
3
1
1
10
4
9
3
7
6
6
5
2
4
1
1
1
2
1
2
3
3
1
3
3
2
1
5
4
4
1
3
3
4
3
2
1
1
1
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Filing Year
14 www.nera.com
Pending US Cases Against Canadian
Companies
As of 31 December 2016, there were 18
pending US cases against Canadian-domiciled
companies.15 All but three were filed in the last
four years. In total, 112 securities class actions
have been filed against Canadian companies
in US court since 1997. Among the cases filed
from 1997 to 2005 that have been resolved,
74% settled. Among the cases filed from 2006
to 2016 that have been resolved, only 38%
settled. Even if all of the currently active cases
were to settle (rather than be dismissed), that
would result in only 54% of cases filed during
the period 2006-2016 being resolved by way of
settlement. The status of these US cases by year
of filing is illustrated in Figure 13 below.
Pending Statutory Secondary Market Cases
Of the 54 unresolved cases, 34 (63%) are
Statutory Secondary Market cases, representing
more than $53 billion in claimed damages, or
about 95% of the total outstanding claims.
Of the 34 unresolved Statutory Secondary
Market cases, seven have been granted leave
of the court in at least one jurisdiction (six of
these have also been certified as class actions;
a certification motion is pending in the other).
Motions for leave and class certification have
been filed, but not yet decided, in seven
other cases.
Figure 13. Status of US Filings Against Canadian-Domiciled Companies
As of 31 December 2016
12
Dismissed
Settled
Pending
Total: 112 Cases Filed
10
10
9
9
2
8
8
8
Number of Filings
8
3
7
6
6
6
4
4
5
5
1
5
5
6
8
4
4
4
4
1
4
6
3
2
5
2
1
2
2
2
2
1
5
4
3
2
1
2
4
1
3
3
2
2
3
2
1
4
1
1
1
1
4
2
3
2
2
2
1
0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Filing Year
www.nera.com 15
Looking Ahead
In 2016, the pace of filings of Canadian
securities class actions exhibited a modest
rebound from the prior year. However, both
2015 and 2016 were below the levels observed
over the preceding five years. This is in stark
contrast with the US, where securities class
actions filings have increased in each of the last
four years. One possible interpretation of the
trend observed in Canada over the past two
years is that a slower pace of filings is the
new norm.
On the other hand, the current lull may be
transient. One potentially relevant consideration
is that the cases filed in 2016 did not exclusively
involve larger issuers. We remarked last year that
higher costs to plaintiffs of pursuing securities
class action claims, combined with damage
limits under the provincial securities acts, have
created greater incentives to bring cases against
larger companies. This suggests we could
expect to see fewer total filings, concentrated
in cases involving larger issuers. However, the
rebound in filings in 2016, while modest, was
not particularly focused on large-cap companies.
This may suggest that the increase observed in
filings was more broad-based and sustainable.
16 www.nera.com
It is important to emphasize, however, that
only limited inferences can be made from the
fairly small sample of recent cases. Moreover,
the pace and other attributes of future filings
will be affected by a variety of factors that
can be difficult to observe and that often
defy prediction. We will continue to monitor
developments as they unfold.
Global Trends:
Summary of Other NERA Studies
Summary of Recent Trends in Securities Class Action Litigation: 2016 Full-Year Review
In 2016, 300 securities class actions were filed
in US federal courts, according to NERA’s Recent
Trends in Securities Class Action Litigation: 2016
Full-Year Review. This figure represents a 32%
increase over 2015 and the highest of any year
since the aftermath of the 2000 dot-com crash.
According to the Trends authors, Svetlana
Starykh and Stefan Boettrich, the growth in
2016 filings was dominated by federal merger
objections, which reached a record high, and
followed various state court decisions restricting
“disclosure-only” settlements, the most prominent
being the 2016 Trulia decision in the Delaware
Court of Chancery.
Additional 2016 Full-Year Review highlights:
• 113 securities class actions settled in 2016,
the highest number observed since 2011, and
a record 149 cases were dismissed.
• The average settlement amount increased
substantially for the second straight year,
reaching $72 million in 2016, up by more
than 35% compared to the 2015 figure.
• Six of the 10 largest settlements involved
Finance sector defendants, as was the case
in 2015.
NERA-defined Investor Losses, a proxy for filed
case size, reached a record $468 billion in 2016,
44% of which arose from securities cases claiming
damages due to regulatory violations. Of those,
several large securities cases stemmed from a US
Department of Justice (DOJ) probe into alleged
price collusion in generic pharmaceuticals. Those
cases contributed to a high concentration of filings
in the Health Technology and Services sector.
A total of 262 securities class actions were
resolved in 2016, but for the first time since
passage of the Private Securities Litigation
Reform Act (PSLRA), more cases were dismissed
than settled. This is due to a record number of
dismissals, at an especially fast pace post-filing,
coupled with a settlement rate that remained
close to an all-time low. The average settlement
amount grew 36% in 2016, marking the second
consecutive year of strong growth, partially driven
by settlements in two longstanding large cases:
Household International and Merck.
www.nera.com 17
Summary of Trends in Regulatory Enforcement in UK Financial Markets
2016 Mid-Year Report
In the first half of the 2016/17 financial year, i.e.,
the six months ended 30 September 2016, fines
imposed by the UK Financial Conduct Authority
(FCA) slowed to a trickle—in both number and
monetary value—according to NERA’s report,
Trends in Regulatory Enforcement in UK Financial
Markets 2016/17 Mid-Year Report. Authored
by Robert Patton and Erin McHugh, the report
analyzes trends based on NERA’s database of fines
and other enforcement activity by the FCA and its
predecessor, the Financial Services Authority (FSA).
Additional 2016/17 Mid-Year Report highlights:
Only 12 fines totaling less than £7 million were
imposed by the FCA in the first half of 2016/17,
representing a small fraction of the more than £1
billion imposed as recently as the second half of
2014/15 (ended 31 March 2015).
The number and amount of fines imposed in
the first half of 2016/17 were lower than in any
semi-annual period since the second half of the
2007/08 financial year.
• The FCA resolved 29 cases involving variations,
cancellations, or refusals of permission to
operate within the UK financial industry,
exceeding the frequency of use of such
measures in observed in eight of the last nine
financial years.
However, this may simply reflect a transient lull
as the regulator redirects resources from several
large-scale investigations that have recently
concluded. Based upon fine activity during the
second half of the 2016/17 financial year, fines
against firms have begun to pick up in intensity.
While the FCA has continued to emphasize
the importance of holding senior managers at
financial institutions to account, the number and
amount of financial penalties imposed by the
FCA on individuals in the first half of 2016/17
remained low. However, this trend may be
reversed with the introduction of the Senior
Manager’s Regime (SMR) and the European
Union’s Market Abuse Regulation (MAR).
Moreover, criminal prosecution of individuals is on
the rise, with the FCA indicting more individuals
in the first six months of this financial year than in
either of the prior two financial years.
18 www.nera.com
• 75% of fines imposed in the first half of
2016/17 were against individuals, a higher
proportion than in any semi-annual period
during the prior five financial years.
• The FCA issued fines against just three firms,
totaling £5.5 million—the lowest level of total
fines against firms in any semi-annual period
since the second half of 2007/08.
Notes
1
2
Bradley Heys is a Director, and Robert Patton is an
Associate Director with NERA Economic Consulting.
We thank Jorge Baez and Stefan Boettrich for helpful
comments on earlier drafts. We also thank Jielei
Mao, David Ogilvie, and Mattia Dolci for valuable
research assistance with this paper. We appreciate the
contributions of Svetlana Starykh to this and previous
editions of this study. These individuals receive credit
for improving this paper. All errors and omissions are
our own.
See Stefan Boettrich and Svetlana Starykh, Recent Trends
in Securities Class Action Litigation: 2016 Full-Year
Review, 23 January 2017, NERA Economic Consulting.
3
Ibid.
4
The class actions involving allegations of manipulation
of the market prices for foreign exchange, gold,
and silver, though securities industry-related, are not
included in our database of securities class actions
because they do not involve claims brought by a class
of investors in securities.
5
The number of TSX-listed and TSX-V-listed companies
was obtained from the December issues of The MiG
Report, published by TSX Inc., for each year from 2011
through 2016.
6
Ibid.
7
See Stefan Boettrich and Svetlana Starykh, Recent Trends
in Securities Class Action Litigation: 2016 Full-Year
Review, 23 January 2017, NERA Economic Consulting.
8
Volkswagen AG American Depository Receipts (ADRs)
trade in the US on the over-the-counter (OTC) market.
Not included in the five cases referred to in the text
(but which could be said to fall into the same category)
is the case involving BP Plc. BP American Depository
Shares (ADS) were listed on the TSX for a portion of the
proposed class period before being delisted, but the
volume of trading of these securities on the TSX was low
even prior to the delisting.
9
For cross-border cases, our settlement data reflects total
amounts paid in both Canada and the US.
10
Two other cases settled before leave was granted but
after having been certified as class actions. The average
of these two settlements was $9.4 million.
11
In two other cases, we do not have sufficient
information to ascertain whether the class was certified
for purposes of settlement or prior to settlement.
12
We treat a case as dismissed where a court denies a
motion for leave (in a Statutory Secondary Market case)
and/or a motion for class certification.
13
Subsequent to the publication of our 2015 report, we
became aware of a case involving AIG where the plaintiff
did not move to lift the stay in the time allotted by the
court’s stay order. For the purposes of our database, we
consider this case to have been discontinued in 2015.
14
It is possible that some of the cases filed in earlier years
have now been abandoned.
15
As stated in the note to Figure 6, our US database
records multiple filings where actions are filed against the
same defendant in more than one federal court circuit,
unless and until they are subsequently consolidated.
About NERA
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Contacts
For further information, please contact:
Bradley A. Heys
Director
Toronto | +1 416 868 7312
[email protected]
Robert Patton
Associate Director
Toronto | +1 416 868 7318
[email protected]
The opinions expressed herein do not necessarily represent the views of NERA Economic Consulting
or any other NERA consultant. Please do not cite without explicit permission from the authors.
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