Compare and Contrast

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2011 midyear reports on securities class action filings. The different methodologies employed by the two organizations have led to different numbers, as usual, although this time that difference also has led to competing conclusions about the overall filing trend.

The findings for the first half of 2011 include:

(1) Filings are either up (NERA) or down (Cornerstone), but both agree that there is a general movement away from Ponzi scheme and credit crisis cases and towards Chinese company and merger & acquisition (M&A) cases. NERA counts 130 filings and Cornerstone counts 94 filings (for some insight on why NERA has a larger total, see footnote 1 of the NERA report, which discusses its counting methodology). The “up” or “down” disparity appears to depend entirely on to which prior period the first half of 2011 is being compared. NERA compares it to the first half of 2010 (71 filings) and concludes that filings are up. Cornerstone compares it to the second half of 2010 (104 filings) and concludes that filings are down. If one looks at the overall trend lines, however, the two reports are reasonably consistent: at the present pace 2011 will be either the biggest (NERA) or second biggest (Cornerstone) year since 2004. An important codicil, however, is that there are only so many listed Chinese companies and M&A cases require continued M&A activity, so past filing performance may not be a good indicator of future filing results.

(2) The lag time between the end of the proposed class period and the filing date continues to decrease. NERA finds that the median lag time was 21 days in the first half of 2011, down from 54 days over the previous four years. Cornerstone finds that the median lag time was 8 days in the first half of 2011, down from 28 days over the previous fourteen years.

(3) NERA also examined the mid-year settlement trends. The average settlement was $23 million, down from the 2010 average settlement of $40 million (excluding settlements over $1 billion). The median settlement was $6.3 million, down sharply from the 2010 all-time high median settlement of $11 million. NERA speculates that the declines may be the result of “defendants’ reduced ability to pay,” resulting in settlements within insurance limits.

Quote of note (Professor Grundfest – Stanford): “If one focuses exclusively on traditional fraud claims against U.S.-based companies, then 2011 may well be on track to be the quietest litigation year since Congress passed the Private Securities Litigation Reform Act of 1995.”

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