NERA, an economics consulting firm, has released its latest study on securities class actions entitled “Recent Trends in Securities Class Action Litigation: Will Enron and Sarbanes-Oxley Change The Tides?” The study reached the following conclusions about the trends in securities litigation since the passage of Sarbanes-Oxley in June 2002:
1) Securities class action filings have not increased dramatically (annual rate of 214 filings, compared to average annual rate of 208 filings from 1996-2001).
2) Dismissals have fallen sharply (half as many dismissals as in the previous 11 month period).
3) Average settlement values have fallen modestly ($22.7 million per settled case, compared to $25.5 million from 1996-2002).
These short-term trends are not nearly as interesting, however, as NERA’s findings suggesting that the PSLRA (enacted in 1995) has not achieved Congress’ goal of reducing meritless securities litigation. Indeed, the chances of a publicly-traded company being sued in a securities class action has increased (by 40.5%), while the percentage of cases dismissed (12-13%) or settled for nuisance value (24%) have remained roughly the same. These results lead to one question: has all of the controversy over the PLSRA (presidential veto, periodic calls for its repeal, etc.) been much ado about nothing?
Congress may want to take a hard look at the lessons of the PSLRA as it considers the Class Action Fairness Act and other tort reforms.