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Laura Simmons
In taking stock of securities class action settlements in 2012, a new Cornerstone Research report finds that while the number of settlements decreased since 2011, the collective dollar amount of those settlements surged more than 100 percent—reaching $2.9 billion.
Among the 53 cases that settled last year, so-called “mega-settlements”—worth more than $100 million—made up nearly 75 percent of total settlement dollars, according to Cornerstone’s “Securities Class Action Settlements—2012 Review and Analysis.”
At the same time, the median settlement amount in 2012 reached an all-time high of $10.2 million, up from an $8.3 million median settlement amount for the period 1996 to 2011. The 2012 figure, then, “suggests an upward shift in the size of the typical case,” says report co-author Laura Simmons.
Record shareholder losses, stemming from stock market volatility, help explain the high 2012 settlement figures. “Shareholder losses are the primary driver of settlement amounts,” Simmons says. Last year, median shareholder losses (referred to as “estimated damages” in the report) climbed to $605 million; the median loss from 2007 to 2011 was $344 million.
And given higher stock market volatility levels over the last three years, the data suggests “shareholder losses will continue at relatively high levels,” Simmons adds.
The involvement of public pension funds as plaintiffs—a trend that’s been on the rise since 2003—is another leading factor in settlement amounts, helping to explain the 2012 figures. “The median ‘estimated damages’ for settlements involving public pensions in 2012 was five times the median ‘estimated damages’ figure for settlements without a public pension as lead plaintiff,” the report states.
Public pension plans were the lead plaintiff in 49 percent of cases that settled in 2012—as compared to 40 percent of settled cases in 2011 and just six percent of settled cases in 2003.
Corresponding actions by the Securities and Exchange Commission are also associated with higher settlement amounts. The report finds that in 2012, “the median settlement amount ($13 million) for cases involving corresponding SEC actions was more than twice the median ($6 million) for cases without such regulatory actions.”
So the authors are keeping watch on what the recent uptick in SEC enforcement actions will mean for future class action trends. After “two consecutive years of record enforcement actions filed in 2011 and 2012, we expect an increase in the percentage of class action settlements with corresponding SEC actions as these enforcement actions are resolved,” the report states.
While the number of securities class action settlements dipped to a 14-year low in 2012, that’s not a trend researchers necessarily expect to continue.
“That number was particularly low in 2012, in part because of a lower number of filings back in 2009 and 2010,” says Simmons, since it typically takes a few years for a case to reach settlement.
But another reason for the low figure “is because there is a backlog of about 70 cases filed in 2008 and 2009 that have yet to be resolved,” Simmons says. A number of those cases stem from the credit crisis of those years and typically take longer to settle, she says.
