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Although the number of securities class action settlements and the average settlement amount dipped last year, according to a recent study, securities lawyers say the steep climb in the median settlement amount to $11.3 million reflects the plaintiffs’ bar’s recent penchant for filing stronger cases. According to a new report issued by Cornerstone Research, the number of securities class action settlements hit its lowest level in a decade last year, dropping by 15%, compared with 2009, to 86 court-approved settlements. Cornerstone worked with the Stanford Law School Securities Class Action Clearinghouse on the report, Securities Class Action Settlements — 2010 Review and Analysis. The total settlement value also declined by about 18% to $3.1 billion in 2010 from $3.8 billion in 2009. And the average settlement amount slid by about two percent points last year, to $36.3 million compared with $37.2 million in 2009. The decline in the number of settlements is likely due to the lower number of securities class actions filed four or five years ago, said Matt Larrabee, a partner in the San Francisco office of Dechert. The average settlement amount, in turn, dropped due to only a small number of very large settlements, he said. “Those two phenomena explain why the number of settlements is down and the average is down,” Larrabee said. Larrabee compared the $6.6 billion settlement in the Enron Corp. securities litigation in 2006 with last year’s largest, the $601.5 million Countrywide Financial Corp. settlement. Despite these declining numbers, the median settlement jumped by about 41% last year to $11.3 million compared with $8.0 million in 2009. According to Cornerstone, that’s the largest percentage increase in the median settlement amount in the past 10 years. It’s also the first time during the past decade that the median settlement amount topped $10 million. The median settlement amount is also the number for practitioners to watch, said Larrabee. “If you exclude the mega settlements, that’s what most people experienced in 2010,” Larrabee said. Securities class actions filed against companies that have been hit with U.S. Securities and Exchange Commission cases are driving up median settlement amounts, Larrabee said. “The SEC has become much more active and that also tends to drive up the settlement values,” Larrabee said. “A lot of people would say settlement values are going to continue to go up in 2011.” The median settlement is likely climbing because the plaintiffs’ bar appears to be bringing “what they would describe as stronger claims,” said Sarah Wolff, a Chicago partner who chairs Reed Smith’s securities litigation and enforcement group. “We’re now settling into a period where the plaintiffs’ bar is, to some degree, trying to be more careful in cases they bring and follow on to the SEC actions even more,” she said. Parallel SEC proceedings do usually lead to higher settlements, said Joseph Grundfest, the director of the Stanford Clearinghouse, in a statement released with the report. “Increased SEC enforcement activity turns out to account for part of the increase in the median size of settlements,” Grundfest stated. Credit-crisis-related settlements are also a factor, he said. Cornerstone Research senior adviser Laura Simmons also issued a statement with the report. “Generally these cases involve relatively high damages and large defendants; not surprisingly, they tend to settle for higher amounts,” Simmons said in the statement. Simmons, who is also an assistant professor at the College of William & Mary Mason School of Business, could not be immediately reached for comment. Another factor in the higher median settlement amount is that U.S. Supreme Court and circuit court rulings “have made it more difficult for plaintiffs to bring securities fraud class actions as they used to with some impunity,” Wolff said. “Since we don’t have as many weak securities cases that nonetheless were settled because the defendants wanted to get on and the plaintiffs wanted to move on as well, I think that helps to account for the increase in [median] settlement amounts, at least in part,” Wolff said. Although many attorneys believe median settlement amounts for credit-crisis securities class actions are likely to climb, Larrabee isn’t so sure. “The causation defenses are much stronger,” Larrabee said. “Lots of things contributed to investor losses in 2008 and 2009, not just defendant conduct. Judges understand that.” Sheri Qualters can be contacted at [email protected].

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