Companies faced fewer federal securities class action lawsuits in 2012 compared to the same period last year, according to recent analysis by PwC.

Overall, the total number of federal securities class-action filings fell to 172 in 2012, down from the 191 cases in 2011.

While the first three quarters of 2012 saw an average of 46 cases, securities litigation filings decreased dramatically in the fourth quarter, to 33 cases—the lowest level since the 30 cases filed in the second quarter of 2009, according to PwC's 2012 Securities Litigation Study. 

According to PwC, the decline in filings in the last quarter appears to be linked to two pivotal events in the United States: the impending presidential election and the political uncertainty inherent in the run-up, and a looming “fiscal cliff” of automatic tax hikes and government spending cuts.

PwC also deduced that Superstorm Sandy may have played a role by interrupting transportation, shutting down power, and blocking access to the Internet and phone service in the Northeast, thereby disrupting law firms, courts, and financial markets.

“While 2012 started much the same as 2011, it ended very differently,” said Patricia Etzold, securities litigation partner with PwC. “Despite the uncertain economic and market conditions in the second half of the year, the number of securities litigation filings decreased by 21 percent leaving us to question the direction things will go from here.”

Filings related to the financial crisis declined. Illustrating the drop, only three financial-crisis-related cases were filed in 2012 after a total of 178 such cases were filed from 2008 to 2011.

M&A-related cases also declined. In 2012, 36 M&A-related cases were filed, a decline from the 48 M&A-related cases filed in 2011, and 41 in 2010.

This year, M&A-related filings represented 21 percent of the total cases filed for the year, making 2012 the third year in a row in which M&A-related cases accounted for more than 20 percent of total cases filed. In comparison, M&A-related filings represented 25 percent (36 cases) in 2011, and 21 percent (27 cases) in 2010.

“The overall level of M&A deal activity continues to remain below the levels seen prior to the financial crisis,” said Neil Keenan, principal with PwC. “Despite the expectation that M&A cases will continue with some level of activity, it will take another market-driven event to truly fill the void left by these waning market events and trends.”

Cases against foreign issuers also decreased dramatically in 2012 compared to 2011. Only 32 cases filed in 2012 (19 percent of total cases), versus 61 filings (32 percent of total cases) the previous year, according to PwC.

Cases against China-based companies decreased 60 percent, from 37 in 2011 to 15 in 2012. Twice as many cases against China-based companies were filed in the first half of the year (10 cases) than in the latter half (five cases). “With future of litigation trends still murky, companies must cast a wide net for monitoring, assessing, and mitigating risks,” Etzold added.

The overall number of settlements and total value of settlements decreased in 2012. After a 26 percent decline in the number of settled federal securities class action cases from 2010 to 2011, cases settled in 2012 decreased by seven percent and the total value of settlements in 2012 represented the lowest amount since 2002.

With the exception of 2011, which saw an increase in total settlement value to $3.4 billion, total annual settlement amounts have been on a downward trend since 2005. The average settlement value (excluding zero-dollar or undisclosed settlements) decreased from $50 million in 2011 to $38 million in 2012.

Accounting-related cases during 2012 decreased 31 percent, most significantly against foreign issuers. The number of cases that alleged accounting fraud decreased from 74 percent in 2011 to 51 percent in 2012. According to PwC, the decline reflects a dwindling number of cases against foreign issuers.

Industry Trends

The health industry topped the charts as the industry with the highest number of filings for 2012 (38 filings), accounting for approximately 22 percent of total cases filed. The average proportion of filing activity against health industry during the past five years has been approximately 17 percent of total filings.

“2012 was a year that implied no clear direction as to where regulators or shareholders may focus in the future—at a crossroads, waiting for a sign,” said Etzold. “2013 looks to be a year that could go in many different directions.”

“Future securities litigation may not be foretold by the trends reflected in the cases filed, but rather in considering the possible direction of the new regime of regulators, and the future paths companies may take.”