Catnip for the Plaintiffs’ Bar: Adverse Disclosures with a Material Price Impact

Securities Analytics Research (SAR), a data analytics company specializing in securities litigation risk, has published U.S. Securities Litigation Risk Report – July 2025.  The report finds that securities litigation risk for listed public companies is growing.  SAR’s press release announcing the report quotes Nessim Mezrahi, Co-Founder and CEO of SAR, as stating that “directors and officers of U.S. public companies face a notable increase in securities litigation risk in 2025.” 

SAR’s report measures U.S. public company securities litigation risk based on the frequency of adverse disclosures and the resulting negative material impact on the disclosing company’s stock price.  During the two years ending June 30, 2025, SAR found that, for companies listed on the New York Stock Exchange or NASDAQ, the average frequency and aggregate severity of market drops following the disclosure of adverse corporate events increased by 2.18 percent and 18.1 percent, respectively, relative to the two years ending December 31, 2024.  (Announcements of adverse events attract the interest of the securities class action plaintiffs' bar, and the greater the market drop following such an announcement, the greater the potential damages. Therefore, as adverse event announcement frequency and market impact severity increase, litigation risk increases as well.)

SAR categorizes adverse corporate events (ACEs) into three groups – Type I, Type II, and High-Risk.  High-Risk ACEs involve a statistically significant stock price decline and both a company public statement and an SEC filing concerning the ACE. Using this categorization system, SAR analyzes litigation risk for eleven industry sectors.  An appendix to the report provides a risk breakdown by industry sector, constituent industries, and sub-industries. Sector level highlights include:

• The sectors with the highest average number of High-Risk ACEs were Industrials (2.70 events per company), Consumer Discretionary (2.67 events per company), and Information Technology (2.58 events per company). The sectors with the lowest average number of High-Risk ACEs were Real Estate (1.60 events per company), Financials (1.81 events per company), and Energy (1.84 events per company).

• The sectors with the highest average market capitalization losses per High-Risk ACE were Information Technology ($2.21 billion per High-Risk ACE), Communications Services ($1.95 billion per High-Risk ACE), and Consumer Staples (roughly $135 per High-Risk ACE).  The sectors with the lowest average market capitalization losses per High-Risk ACEs were Real Estate ($300 million per High-Risk ACE), Materials ($490 million per High-Risk ACE), and Industrials (roughly $650 million per High-Risk ACE). 

• Overall, the sector with the highest litigation risk is Health Care, followed by Industrials and Consumer Discretionary.  The sector with the lowest litigation risk is Utilities, followed by Energy and Materials.

SAR states that its report helps identify “corporate disclosure trends that increase the likelihood of private securities-fraud litigation or enforcement actions brought by the Securities and Exchange Commission (“SEC”) against directors and officers of companies listed on the NYSE or NASDAQ.”  While the report is aimed at investors, audit committee members and company management may also want to consider the level of risk that the company and its officers and directors face, based on the industry in which the company operates and its market capitalization.  A sophisticated approach to disclosure should help to reduce the number of adverse corporate event announcements that surprise the market.