Category Archives: Lies, Damn Lies, And Statistics

Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) has released its 2014 midyear report on federal securities class action filings.

The findings for the first half of 2014 include:

(1) There were 78 filings, which closely matches the pace of the first half of 2013. Approximately one in sixty companies listed on a major exchange were sued.

(2) Healthcare, biotechnology, and pharmaceutical companies were the most frequent targets for securities class actions, accounting for 21% of the filings.

(3) The number of filings in the Sixth, Eighth, and Tenth Circuits was up sharply, already equaling or eclipsing the full year totals for 2013.

Quote of note (Professor Grundfest – Stanford): “The most intriguing new trend in the market concerns high-frequency trading and allegations related to Michael Lewis’s Flash Boys. There lawsuits are very much in the early stages, and raise issues with a degree of economic complexity that far surpass the challenges encountered in the typical class action securities fraud case as we know it.”

Cornerstone Research has released its annual report on securities class action settlements. The notable findings include:

(1) There were 67 settlements last year, a 17.5% increase from 2012. The report concludes that the increase is likely due to the settling of “credit crisis” cases.

(2) The average settlement value was $71.3 million (significantly higher than historical levels), but the median settlement value was $6.5 million (significantly lower than historical levels). The discrepancy can be explained by the presence of six settlements over $100 million, which increased the average settlement value even as the size of more typical settlements declined.

(3) Overall, 50% of cases since 1996 (post-PSLRA) have settled for between $3.6 million and $20.6 million.

(4) In 2013, the median time to settlement from filing was 3.2 years.

Quote of Note (press release): “This past year’s data also represent the fading echoes of the financial crisis, as some of the largest settlements resolve claims of fraud surrounding transactions in mortgage-backed securities. These lawsuits won’t be around in the coming years to drive aggregate settlement values.”

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2013 annual reports on securities class action filings. As usual, the different methodologies employed by the two organizations have led to different numbers, although they both identify the same general trends.
The findings for 2013 include:

(1) The reports agree that filings have increased by a slight amount. NERA finds that there were 234 filings (compared with 213 filings in 2012), while Cornerstone finds that there were 166 filings (compared with 152 filings in 2012). NERA normally has a higher filings number due to its counting methodology (see footnote 2 of the NERA report).

(2) The reports note that the number of companies listed on U.S. exchanges has declined nearly 50% from 1996 to 2013, but draw different (albeit not contradictory) conclusions from this statistic. NERA states that “the implication of this decline is that an average company listed in the US was 83% more likely to be the target of a securities class action in 2013 than in the first five years after the passage of the PSLRA.” Cornerstone, in contrast, points to this decline as “one explanation for the recent relatively low levels of filing activity compared with historical averages.”

(3) The Cornerstone report offers a new analysis of class certification trends. It notes that between 2002 and 2010, class certification was denied for reasons based on the merits of the motion (e.g., typicality, predominance, etc.) in less than two dozen cases.

(4) NERA found a sharp increase in the average settlement amount in 2013, reaching a new record of $55 million. The median settlement amount, however, decreased 26% to $9.1 million. NERA concludes that “a few large settlements drove the average up, while many small settlements drove the median down.”

The NERA report can be found here. The Cornerstone/Stanford report can be found here.

Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) has released its 2013 midyear report on federal securities class action filings.

The findings for the first half of 2013 include:

(1) There were 74 filings, which was 16 percent higher than the second half of 2012 (but well below the historical average per six-month period). The increase is primarily the result of an increase in filings against technology and energy companies.

(2) Federal filings associated with M&A transactions remained at low levels. These actions now are being pursued primarily in state court.

(3) For filings in the years 2008 through 2010, a larger percentage of cases were dismissed than in prior years, with dismissal rates climbing significantly above 50%. One contributing factor, however, was the higher dismissal rates for M&A filings, which frequently were brought in federal court during this period.

Quote of note (Professor Grundfest – Stanford): “We are observing class certification challenges on the grounds that the fraud on the market doctrine should not apply. If this defense strategy is successful, and if the Supreme Court eventually backs away from the fraud on the market doctrine, then the class action securities fraud litigation market will likely shrink significantly. This potential evolution in legal doctrine likely represents the largest ‘risk factor’ for anyone trying to predict the future course of the securities fraud litigation market.”

Cornerstone Research has issued a study of 2012 securities class actions involving accounting allegations. The notable findings include:

(1) The number of accounting filings fell from 78 in 2011 to 45 in 2012. Two factors that contributed to this decline were the overall decrease in filings and the specific decrease in Chinese reverse merger cases (which frequently include accounting allegations).

(2) The proportion of accounting filings involving restatements (36%) and internal control weaknesses (67%) remained relatively constant.

(3) Accounting cases are less likely to be dismissed and more likely to settle than non-accounting cases. In 2012, accounting cases were less than 70% of the settled cases, but represented more than 90% of the total value of settlements.

Cornerstone Research has released its annual report on securities class action settlements. The notable findings include:

(1) There were 53 settlements in 2012, involving $2.9 billion in total settlement funds. While the overall number of settlements represents a 14-year low, the total settlement funds increased by more than 100% from 2011. The increase in total settlement funds was due in large part to an increase in $100m+ settlements (accounting for nearly 75 percent of all settlement funds in 2012).

(2) The average reported settlement amount increased from $21.6 million (2011) to $54.7 million (2012). There also was a sharp increase in the median settlement amount from $5.9 million (2011) to $10.2 million (2012). The key factor identified by Cornerstone as responsible for the increase in settlement values was a spike in the median “estimated damages” associated with the settled cases (a significant portion of which were related to the credit crisis).

(3) More than 50% of the settled cases were accompanied by a derivative action filing, compared with a post-Reform Act average of 30%. The presence of a derivative action historically coincides with a higher settlement value for the related securities class action.

Quote of Note (press release): “Class action securities fraud litigation is, like many other lines of business, ‘hit driven,’ in that a small number of settlements often account for a large percentage of the dollar flow. That fact of life can make annual settlement data quite lumpy. Settlement trends are often best viewed over time periods longer than a year, and by carefully analyzing settlement data to reflect the underlying characteristics of the cases being settled. So, just as a lull in last year’s data suggested a pickup for this year in the aggregate statistics, it is always possible that this year’s bump could cause total settlement dollars to tick downward next year.”

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2012 annual reports on securities class action filings. As usual, the different methodologies employed by the two organizations have led to different numbers.

The findings for 2012 include:

(1) NERA finds that there were 207 filings (compared with 225 filings in 2011), while Cornerstone finds that there were 152 filings (compared with 188 filings in 2011). NERA normally has a higher filings number due to its counting methodology (see footnote 2 of the NERA report). A key difference in 2012 is how Cornerstone and NERA counted M&A suits, with NERA reporting 53 M&A filings and Cornerstone reporting 13 M&A filings.

(2) The difference in the M&A filings count leads NERA and Cornerstone to markedly different conclusions about what happened last year. NERA finds that filings generally are holding steady, with the key difference being a decline in credit crisis filings (from 13 filings to 4 filings). In contrast, Cornerstone concludes that there has been a sharp decline in filing activity, led by the drop in M&A filings (from 43 filings to 13 filings), and that this decline has resulted in the second-lowest filing level in the past sixteen years.

(3) NERA and Cornerstone agree that filings in the Ninth Circuit were down nearly 50% as compared to 2011. Cornerstone attributes the change “largely” to a decline in M&A and Chinese reverse merger filings.

(4) NERA finds a sharp drop in the number of settlements. Only 93 securities class actions were settled in 2012 — a record low since 1996 and a 25% reduction as compared to 2011. Settlement values, however, were near their average level from recent years.

The NERA report can be found here. The Cornerstone/Stanford report can be found here.

Quote of note (Professor Grundfest): “Is there a shoe waiting to drop? The SEC claims that the Dodd-Frank bounty program has helped it build a large inventory of high-quality leads as to fraud at publicly traded corporations. But will the Commission be able to transform these leads into quality enforcement actions? And, will private-party plaintiffs be successful in prosecuting “piggyback” claims that copy the Commission’s complaints? The current quiet patch in private securities fraud litigation could certainly be unsettled if the Dodd-Frank bounty program generates a new wave of private claims.”

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2012 midyear reports on securities class action filings. As usual, the different methodologies employed by the two organizations have led to different numbers, although they generally agree that the number of filings is holding steady.

The findings for the first half of 2012 include:

(1) NERA counts 116 filings and Cornerstone counts 88 filings (NERA treats actions filed in different circuits, but against the same defendant, as separate filings – see FN 2 of the report). Cornerstone views this as a slight decrease in total filings, down 6 percent from both the first half and second half of 2011, while NERA finds it in line with historical averages.

(2) Both NERA and Cornerstone agree that there has been a decline in M&A-related filings and, correspondingly, an increase in “standard” misstatement cases alleging violations of Rule 10b-5, Section 11, and/or Section 12. According to NERA, there have been 83 “standard” filings in the first half of 2012. If that pace continues, it will lead to the most “standard” filings since 2008.

(3) The number of cases against foreign-domiciled companies is decreasing, largely due to a decline in Chinese reverse merger filings.

(4) NERA’s report contains an interesting analysis of the motions practice in securities class actions that were filed and settled between 2000 and 2012. The findings include that in 22% of cases where a motion to dismiss was filed, and in 46% of cases were a motion for class certification was filed, the cases were settled before the court issued a decision on the pending motion.

(5) NERA also examines the settlement activity so far this year and concludes (a) the overall number of settlements is lower than usual (a projected 98 settlements in 2012 vs. 123 settlements in 2011), but (b) the median settlement amount ($7.9 million) is about the same as last year and consistent with pre-credit crisis levels.

Quote of Note (Professor Grundfest – Stanford): “Looking over the horizon, the Libor-litigation industry is clearly a sector to watch for years to come. The magnitude of the potential exposures and the complexity of the underlying damages claims will likely generate large amounts of litigation activity in many geographies.”

Cornerstone Research has released its annual report on securities class action settlements. The notable findings include:

(1) There were 65 settlements in 2011, involving $1.4 billion in total settlement funds. These numbers represent a significant decline as compared to 2010 (86 settlements; $3.2 billion in funds) and are the lowest number of approved settlements and total settlement dollars in more than 10 years.

(2) The average reported settlement amount decreased from $36.3 million in 2010 to $21 million in 2011, substantially below the average of $55.2 million for all post-PSLRA settlements. Among the factors identified by Cornerstone as possibly responsible for the decrease are: (a) the overall drop in filings of traditional securities class actions that began in 2006; (b) a decline in very large settlements (only three over $100 million); (c) a lower average estimated damages in the settled cases; and (d) fewer cases involving accounting allegations or accompanied by SEC actions/derivative actions.

(3) Robbins Geller was the most active firm in 2011, having been involved in 35% of the settled cases.

Quote of Note: “[C]onsidering that the $725 million partial settlement approved in February 2012 in the American International Group, Inc., Securities Litigation matter exceeds 50 percent of the total value of 2011 settlements and that other tentative mega-settlements have settlement approval dates in 2012, it appears likely that the total dollar amount for settlements will return to more typical levels in 2012.”

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2011 annual reports on securities class action filings.

The findings for 2011 include:

(1) Cornerstone finds that there were 188 filings (compared with 176 filings in 2010), while NERA finds that there were 232 filings (compared with 241 filings in 2010). (For some insight on why NERA has a larger total, see footnote 2 of the NERA report, which discusses its counting methodology. Also, NERA’s report came out in December, requiring it to use a projected number for December’s total filings.) Both reports agree that cases against listed Chinese companies and M&A cases have driven a significant portion of the filing activity. Meanwhile, credit crisis cases have dwindled (Cornerstone – 3 filings; NERA – 11 filings).

(2) Cornerstone has an interesting new analysis on the probability of a securities class action advancing through different stages of litigation. The analysis, using filings from 1996 to 2011, finds that prior to the filing of a motion to dismiss, 9% of cases were voluntarily dismissed and 16% were settled. Of the remaining 75% of cases, 32% were dismissed, 35% were settled, and 8% reached a ruling on summary judgment or beyond. The report also breaks down these numbers by circuit and year.

(3) NERA provides some settlement statistics and finds that, even excluding large settlement outliers, there was a substantial decline in average settlement values — from $40 million in 2010 to $31 million in 2011. The median settlement value was $8.7 million, which was less than the 2010 all-time median settlement value of $11 million, but still the third highest on record.