#United States #Bethesda #securities litigation #SAR Company #U.S. Public Companies

Securities Litigation Risk Increase in 2024

Overview
A recent report published by SAR—a data analytics firm specializing in securities litigation risk—reveals a concerning trend for U.S. public companies. By the end of 2024, the risk associated with securities litigation has surged by a staggering $1 trillion. The U.S. Securities Litigation Risk Report – January 2025 highlights critical insights into how corporate disclosures have significantly impacted stock prices, as well as the driving factors behind this heightened risk.

Findings from the Report
From corporate disclosures made to the Securities and Exchange Commission (SEC), it was determined that the frequency of adverse corporate events rose by 6.0%, with the severity increasing by 7.0%, over a two-year period ending September 2024. During this period, SAR identified 10,536 high-risk adverse corporate events among a total of 4,605 U.S. public companies. The results of this analysis show a clear correlation between these events and sizable market capitalization losses, which hit approximately $10 trillion, marking an increase of $1.1 trillion compared to the previous period analyzed.

Sector Analysis
In terms of sectors, the Information Technology sector led the pack, experiencing market capitalization losses of $2.8 trillion. This was closely followed by Consumer Discretionary with $1.6 trillion, and Health Care with losses totaling $1.4 trillion. The report noted that the Consumer Discretionary sector bore the highest losses relative to its specific market capitalization, at 19.18%, emphasizing the precarious position of companies within that industry.

Rising Risks and Legal Implications
Nessim Mezrahi, Co-Founder and CEO of SAR, outlined key factors contributing to the increased litigation risks for directors and officers of U.S. public companies. He pointed out that the growing complexity surrounding risk factor disclosures will likely attract more lawsuits, especially after the Supreme Court's recent decision regarding a high-profile securities class action. The rise in litigation risk will have pronounced implications for companies moving into 2025, as the landscape continues to evolve.

Significant Impacts on Stock Prices
High-risk adverse corporate events not only induce legal challenges but also take a toll on stock market performance. Data shows that companies in the Information Technology sector led in terms of losses per event at $1.73 billion. Meanwhile, Communication Services and Consumer Discretionary sectors reported losses of $1.59 billion and $1.2 billion per event respectively. This shows a significant vulnerability within these critical sectors as companies navigate complex market dynamics.

Future Landscape
With a focus on gauging risk, SAR’s report provides a timely prognosis of market conditions. The Health Care sector notably has the highest median SAR Risk Score at 29.11%, indicating its heightened vulnerability amid evolving market conditions. Meanwhile, the Information Technology and Consumer Discretionary sectors followed closely with scores of 25.44% and 24.21%, portraying a landscape fraught with challenges for governance and compliance strategies among these entities moving forward.

Conclusion
The increase in securities litigation risk by $1 trillion underscores a significant concern for U.S. public companies, particularly as legal complexities around corporate disclosures continue to mount. Stakeholders must remain vigilant as this trend evolves, potentially impacting investment strategies and corporate governance standards across the market landscape.