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. www.nera.com 1 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. 2 www.nera.com 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. Trends in Filings 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). 2 6 2 4 1 2 3 4 3 2 2 1 2 2 2 1 2 2 2 1 2 1 2 1 2 2 1 1 1 2 2 1 6 3 4 1 3 2 5 7 5 5 12 9 12 15 10 11 13 4 9 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Figure 1. Cases Filed by Year and Allegation Type 1997–2016 0 2 4 6 8 10 12 14 16 Number of Filings Filing Year Other Responsible Issuer Case Credit Crisis Case Stock Option Manipulation Case Ponzi Scheme Case Investment Fund Case Analyst Case Statutory Secondary Market Case Total: 138 Cases Filed 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. 7 4 11 1 3 5 7 9 8 10 5 1 2 2 1 www.nera.com 3 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). 4 www.nera.com Figure 2. Filings of Statutory Secondary Market Cases 2006–2016 1 3 9 6 7 8 9 8 10 11 4 0 2 4 6 8 10 12 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Filings Filing Year Total: 76 Cases Filed 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 10 6 7 7 4 8 5 7 6 5 6 3 0 2 4 6 8 10 12 $0 - $100 $100 - $200 $200 - $300 $300 - $400 $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+ $100 Million Intervals $500 Million Intervals Market Capitalization of Defendant Issuer on the Last Trading Day Prior to the Proposed Class Period (CAD Millions) Number of Filings Note: Figure shows data for 74 out of 76 Statutory Secondary Market cases where market capitalization data is available. www.nera.com 5 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 Filed in Quebec but not in Ontario 12% Filed Outside of Ontario and Quebec 12% 1997–2005 Filed in Ontario and Quebec 16% Filed in Ontario and Quebec 21% Filed in Ontario but not in Quebec 62% Filed in Ontario but not in Quebec 55% 2006–2016 Filed Outside of Ontario and Quebec 12% Filed in Quebec but not in Ontario 10% 6 www.nera.com 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). 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. Figure 5. Filings of Statutory Secondary Market Cases With and Without Parallel Filings in the US 2006–2010 2011–2016 24 Filings With Statutory Secondary Market Claims With Parallel Filings in the US (49%) 25 Filings With Statutory Secondary Market Claims Without Parallel Filings in the US (51%) 10 Filings With Statutory Secondary Market Claims With Parallel Filings in the US (37%) 17 Filings With Statutory Secondary Market Claims Without Parallel Filings in the US (63%) www.nera.com 7 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. Figure 6. US Filings Against Canadian-Domiciled Companies by Year of US Filing 33 US Filings With Parallel Canadian Actions (52%) 8 US Filings With Parallel Canadian Actions (16%) 30 US Filings Without Parallel Canadian Actions (48%) 41 US Filings Without Parallel Canadian Actions (84%) 2006–2016 1997–2005 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. 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). 8 www.nera.com 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 Other Health Technology and Services Electronic Technology and Technology Services Producer Manufacturing Consumer Durables Non-Durables Commercial and Industrial Services Finance Energy and Non-Energy Minerals 13 (20.3%) 4 (6.3%) 5 (7.8%) 2 (3.1%) 3 (4.7%) 2 (3.1%) 20 (31.3%) 15 (23.4%) 8 (10.8%) 3 (4.1%) 4 (5.4%) 5 (6.8%) 6 (8.1%) 7 (9.5%) 10 (13.5%) 31 (41.9%) 0 5 10 15 20 25 30 35 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. Number of Filings www.nera.com 9 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 Figure 8. Median Time to Filing From the End of the Proposed Class Period 2003–2016 Median Number of Months Between End of Proposed Class Period and Filing of Action Filing Year Median 2003–2006: 6.2 Months Median 2007–2016: 3.8 Months Median 2011–2015: 3.4 Months 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. 9.9 9.7 6.0 8.6 5.0 4.3 0.9 13.3 2.8 3.2 3.0 5.7 3.2 4.4 0 2 4 6 8 10 12 14 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 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). 10 www.nera.com 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. Figure 9. Settlements by Year 2001–2016 Number of Settlements Settlement Year 1 3 1 2 5 3 8 7 5 2 3 6 6 7 2 0 1 2 3 4 5 6 7 8 9 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 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. www.nera.com 11 Figure 10. Median Settlement Amount in Canadian Securities Class Actions by Year 2001–2016 $10.6 $64.5 $42.9 $2.0 $6.1 $20.0 $28.0 $9.3 $10.0 $29.3 $13.8 $9.9 $8.4 $11.0 $26.7 $0 $10 $20 $30 $40 $50 $60 $70 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Median Settlement Amount (CAD Millions) Settlement Year Median 2007–2016: $12.5 Million (US$11.9 Million) 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). 12 www.nera.com 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%). 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. www.nera.com 13 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 1 6 8 11 10 10 11 16 21 21 22 26 28 35 46 52 56 61 51 54 0 10 20 30 40 50 60 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Pending Cases 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. 14 www.nera.com 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 Total: 138 Cases Filed Active Dismissed Discontinued Settled 1 1 1 2 1 3 6 6 3 6 4 3 10 4 9 3 2 1 1 3 1 1 4 1 2 1 1 1 2 3 1 3 1 2 1 3 7 5 5 12 12 10 11 13 15 9 9 5 7 5 4 4 3 2 1 3 2 3 7 2 5 7 4 4 2 0 2 4 6 8 10 12 14 16 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Filings Filing Year www.nera.com 15 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. 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. Figure 13. Status of US Filings Against Canadian-Domiciled Companies As of 31 December 2016 Total: 112 Cases Filed Dismissed Settled Pending 2 3 2 1 1 1 2 2 1 4 1 3 4 4 5 1 2 2 2 5 1 5 8 4 2 6 2 2 1 4 1 2 1 4 1 2 2 1 3 3 3 6 4 10 3 6 9 4 2 7 4 4 2 8 3 5 5 8 9 6 5 8 0 2 4 6 8 10 12 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Number of Filings Filing Year 16 www.nera.com 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. 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. www.nera.com 17 Global Trends: Summary of Other NERA Studies 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. 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. 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. Summary of Recent Trends in Securities Class Action Litigation: 2016 Full-Year Review 18 www.nera.com 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). 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. 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. Summary of Trends in Regulatory Enforcement in UK Financial Markets 2016 Mid-Year Report Additional 2016/17 Mid-Year Report highlights: • 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. • 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. Notes 1 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. 2 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 NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation. NERA’s clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific. Contacts For further information, please contact: Bradley A. Heys Director Toronto | +1 416 868 7312 email@example.com Robert Patton Associate Director Toronto | +1 416 868 7318 firstname.lastname@example.org 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. Visit www.nera.com to learn more about our practice areas and global offices. © Copyright 2017 National Economic Research Associates, Inc. All rights reserved.