Owing to a number of larger settlements, the average securities class action settlement amount in 2013 rose, while at the same time the media settlement amount declined, according to a study of the securities suit settlements from Cornerstone Research. The study also reports that the number of settlements and the aggregate dollar value of all settlements also rose during the year. The report, which is entitled “Securities Class Action Settlements: 2013 Review and Analysis,” can be found here. Cornerstone Research’s March 27, 2014 press release about the study can be found here.
According to the report, there were 67 securities class action settlements that received court approval during 2013 (up from 57 in 2012). The aggregate dollar value of the 2013 settlements was $4.773 billion, which represented a 46 percent increase over 2012 and which also was the highest annual total dollar value over the last six years.
The average settlement amount during the year was $71.3 million, compared to the average securities class action settlement during the period of $55.5 million between 1996 and 2012. (All settlement dollars are adjusted to account for economic inflation.). The increase in the aggregate and average settlement amounts during 2012 was largely a reflection of the number of “mega settlements” (i.e., settlements over $100 million). There were six mega settlements during 2013, which was the second highest proportion of those large settlements in the last ten years. The number of large settlements during the year was in part due to the resolution of several credit crisis-related lawsuits. These six mega settlements accounted for 84 percent of the total dollar value of the 2013 settlements.
While aggregate and average settlement values increased during 2013, the median settlement amount declined. The median settlement value in 2013 was $6.5 million, compared to a median settlement amount during the period 1996-2012 of $8.3 million. The decrease in the median during 2013 was a result of the high number of smaller settlements – approximately 60 percent of the cases that settled in 2013 were resolved for $10 million or less. About a third of these smaller settlements related to cases involving Chinese reverse merger companies (all but one of the Chinese reverse merger cases that settled in 2013 were resolved for less than $10 million).
The report includes a graphical illustration (Figure 4 in the report) showing a cumulative ten-year settlement distribution. According to the illustration, 55.5% of all cases were settled for $10 million or below, 78.8% of cases were settled for $25 million or below, and 87.4% of cases were settled for $50 million or below.
A separate illustration (Figure 7) shows median settlements as a percentage of “estimated damages” during the preceding ten years. The illustration shows that median settlements as a percentage of these estimated damages have fluctuation over time but have remained in the roughly 2-3% range during that period. During 2013, the figure was 2.1%, which was level with 2011 but up slightly from 2012 (when the figure was 1.8%). An accompanying figure shows that these percentages decrease as the size of the settlement increases. For settlements under $50 million, the percentage in 2013 was 15.1%, while for settlements over $250 million, the percentages were 2.0% or lower.
Over the last ten years, the median settlement value of cases that allege only ’33 Act claims ($3.4 million) is lower than for cases that allege only ’34 Act claims ($8.8 million) or that allege both ’33 Act and ’34 Act claims ($6.8 million). This difference is a reflection of the fact that the “estimated damages” for ’33 Act claims tends to be lower than the two other categories of cases.
The study also shows that cases involving alleged GAAP violations, restatements or reported accounting irregularities all tend to be associated with higher settlement amounts and tend to settle for a larger percentage of “estimated damages” than cases without those allegations. Similarly, cases involving third-party codefendants, such as an auditor or underwriter, often are larger and more complex cases and have a higher settlements as a percentage of “estimated damages.”
Over 55 percent of settlements since 2006 have had an institutional investor as lead plaintiff. Possibly because the cases in which the institutional investors tend to get involved are the larger or more serious cases, the settlements in cases involving institutional investor lead plaintiffs are larger than for other cases. The median settlement in 2013 for cases with a public pension as a lead plaintiff was $23 million, compared with $3 million for cases without a public pension lead plaintiffs.
Settlement amounts for class actions accompanied by derivative actions are significantly higher. In 2013, 40 percent of settled cases involved an accompanying derivative action, compared to 32 percent of settled cases during the period 1996-2012.
Cases involving a corresponding SEC action are associated with significantly higher settlement amounts and have higher settlements as a percentage of “estimated damages.” The median settlement amount for cases with an accompanying SEC action for the period 1996-2013 was more than two times the median settlement for cases without an accompanying SEC action. Settlements of $50 million or lower are far less likely to involve corresponding SEC actions or public pensions as lead plaintiffs.
The report does note that the Halliburton case now pending before the U.S. Supreme Court “has the potential to dramatically affect the entire landscape surrounding securities class actions, “ including the considerations relating to settlements discussed in the report, including, in particular “the settlement amounts involved.”
Read other items of interest from the world of directors & officers liability, with occasional commentary, at the D&O Diary, a blog by Kevin LaCroix.
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