Securities Cases Involving Cryptocurreny Rising – Lex Machina Report

Bitcoin, Blockchain and the Law, Investing, News, Regulation | September 11, 2018 By:

Lex Machina, a LexisNexis company and creator of the Legal Analytics® platform, has released its 2018 Securities Litigation Report. The document showcases the recent trends and insights from its database of over 15,000 securities cases litigated in federal district court since 2009.

The new report compares cases from two 18-month time periods separated by the nomination of current SEC Chairman Jay Clayton in January 2017. By comparing July 1, 2015 through December 31, 2016 versus January 1, 2017 through June 30, 2018, Lex Machina has uncovered new developments in securities litigation.

The Securities Litigation Report presents data on key components of securities cases filed from 2009 to Q2 2018, including the number of district court filings, timing analytics, findings and case resolutions, top law firms, damages, and specific damage awards, such as approved class action settlements.

Among its key findings, the report reveals that during the 18 months following the nomination of Jay Clayton as SEC Chairman in January 2017, securities case filings were at an all-time high (2,622 cases — a 60% increase over the prior 18 months), with Q1 2018 recording the most case filings to date (485 cases).

During the same period, plaintiff losses on judgments on the pleadings also increased, with fewer cases proceeding to trial on the merits. Between July 1, 2015 through December 31, 2016 there were 42 claim defendant wins with a judgment on the pleadings. But during the next 18 months, that number jumped to 173. The median time to termination decreased from 419 days in the first 18-month period to 138 in the second, likely due to the increase in cases resolving on plaintiff voluntary dismissals and judgment on the pleadings.

In addition, the first two quarters of 2018 saw a significant rise in the amount of securities cases relating to cryptocurrency or bitcoin. Using Legal Analytics’ keyword search functionality, Lex Machina discovered case filings relating to this emerging area surged from seven cases in Q4 2017 to 22 cases in Q1 2018 Q1 and 23 cases in Q2.

“According to our 2018 Securities Litigation Report, many unexpected new trends have emerged,” said Karl Harris, CEO of Lex Machina. “The significant increase in case filings coupled with the higher rate of cases tossed out at the pleading stage should compel securities lawyers on both sides to leverage the data to inform and create new litigation strategies. Our Securities Litigation Report enables lawyers to respond quickly and confidently to these new developments.”

Among the other highlights presented in the report:

  • Damages: Damages awarded from 2017 through Q2 2018 ($4.8 billion) were 64% lower than in the previous 18 months (nearly $13.3 billion), which included a $1.5 billion class action settlement in Jaffe v. Household Intl. Inc., and a $1 billion class action settlement in Merck & Co., Inc., Securities, Derivative & ERISA Litigation, from 2016. The highest class action settlement award since 2017 was $210 million in Woburn Retirement System v. Salix Pharmaceuticals, Ltd.
  • Law firms:  Aside from the SEC, the top three plaintiff firms for cases filed from 2017 to Q2 2018 were Levi & Korsinsky (266 cases), Pomerantz (204 cases) and The Rosen Law Firm (198 cases). Among defendant firms, Skadden, Arps, Slate, Meagher & Flom lead the list with 58 cases, followed by King & Spalding (49 cases) and Paul, Weiss, Rifkind, Wharton & Garrison (49 cases). Skadden also topped the list of law firms with the most claim defendant wins (13 cases) followed by Sidley Austin (10 cases).
  • Jurisdiction changes: More securities cases are being filed in the District of Delaware (D. Del.) than ever before. D. Del. rose to 3rd place from 14th and now holds 8% of new cases filed between 2017 and Q2 2018 (198 cases). Lex Machina’s data shows that Delaware state court filings are down for causes of action like breach of fiduciary duty. The reduction in breach of fiduciary duty claims in the Delaware Court of Chancery (DCC) and the increase in the D. Del Securities cases could be the result of the Delaware Supreme Court and DCC decisions in the C&J Energy, Corwin, and Trulia cases. Following those decisions, it seems likely that practitioners have begun filing certain mergers & acquisitions claims in D. Del. instead of the DCC.

Attorney Laura Hopkins, a legal data expert at Lex Machina, said the biggest takeaway from the cryptocurrency section of the report is that we saw case filings triple in the first quarter of 2018 and hold there in Q2, with the SEC or CFTC filing 30% of the cases over the last 18 months.

“That trend will likely not hold in Q3, since we have less than 30 days left and there have only been 12 cases filed,” said Hopkins. “The nomination of SEC Chairman Jay Clayton could have caused a spike in filings, or it could have been caused by the SEC’s crack-down on coins or tokens it deemed to be fraudulent or securities. On the defendant side, Longfin is responsible for about 13% of the case filings in 2018 and Bitconnect is the defendant in 10% of the cases filed in 2018.”

To request a copy of the full report, register here.