Cornerstone said institutional investors continued to participate actively in post–Reform Act securities class actions and served as lead plaintiffs in nearly 65% of 2009 settlements. Cases involving public pensions as lead plaintiffs were associated with significantly higher settlements.
“The classic litigation risk factors continue to run true to form. If a lawsuit is prosecuted by a large public pension fund, involves a parallel SEC proceeding, and alleges accounting violations, then defendants can be expected to pay higher amounts,” said Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, in a news release.
The analysis found securities class-action settlements totaled $3.8 billion in 2009, a jump of more than 35% from 2008. The study identified a total of 103 settlements approved in 2009, up slightly over the 97 settlements in 2008.
The average settlement value increased from $28 million for settlements in 2008 to $37 million for settlements in 2009. The median settlement in 2009 was $8 million, unchanged from 2008. While this is lower than the inflation-adjusted median of $9.3 million in 2007, it is higher than the median for all cases settled from 1996 through 2008, Cornerstone said.
Estimated “plaintiff-style” damages for all cases settled in 2009 averaged $2.7 billion, a 35% increase, adjusted for inflation, over the average for 2008 settlements. Approximately 45% of 2009 settlements involved companion derivative actions, slightly higher than the 40% in 2008. Derivative actions tended to be associated with larger class actions and significantly higher settlement amounts.
The 9th Circuit (California/Alaska/Arizona/Hawaii/Idaho/Montana/Nevada/Oregon/ Washington) had the highest number of settled cases in 2009 with 28 settlements, followed by the 2nd Circuit (New York/Connecticut/Vermont) with 22 cases settled.
The largest industry concentration among 2009 settled cases was in the financial sector, but these settlements primarily were for case filings with class periods ending prior to 2008. Securities case filings related to the credit crisis in 2008, for the most part, are yet to be resolved.
“Because securities fraud litigation typically settles three to five years after the first complaint is filed, this year’s settlement activity reflects lawsuits brought roughly between 2004 and 2006. Given litigation trends over those years, the 2009 settlement data are within the zone of expected settlements, and aren’t much of a surprise,” Grundfest noted.
The full text of the report is available at the Cornerstone Research Web site, securities.cornerstone.com, and the Stanford Law School Securities Class Action Clearinghouse Web site, securities.stanford.edu.