The race to release annual data on securities class action filings has heated up to the point where the two major players both have decided not to wait for the final numbers to come in. This week saw the publication of “2006: A Year in Review” from Cornerstone Research/Stanford Law School Securities Class Action Clearinghouse and “Recent Trends in Shareholder Class Action Litigation: Filings Plummet, Settlements Soar” from NERA Economic Consulting. The reports use filing data through mid-December 2006.
The findings include:
(1) Filings plunged to a record low since the passage of the PSLRA in 1995. As usual, the reports differed in their calculation of the exact number of filings. Cornerstone found that there were 110 filings (as compared to a post-PSLRA average of 193), while NERA found there were 129 filings (as compared to a post-PSLRA average of 239).
(2) The average settlement, excluding settlements over $1 billion, was $34 million (up 37% over 2005). The increase is driven almost entirely by the growth in settlements over $100 million. (NERA)
(3) There has been a dramatic decrease in the total market capitalization losses associated with filings (44% decline in losses measured as of the last day of the class perod), which is a product of fewer filings and lower market capitalization losses per filing. (Cornerstone)
(4) A significant portion of cases are dismissed within the first two years. The Second and Ninth Circuits, which together receive the most cases, dismiss approximately 20% within this time period. The Fourth Circuit has the highest rate, dismissing 31% of cases within two years, while the Tenth Circuit has the lowest, at 5%. (NERA)
Why the decline in filings this past year? Possible reasons put forward by the reports include better corporate governance (Cornerstone and NERA), a strengthened federal enforcement environment (Cornerstone), a strong stock market combined with lower stock price volatility (Cornerstone), and distraction on the part of the plaintiffs’ bar (NERA).
Addition: Point of Law and D&O Diary present some thoughts on the filings decline.