Category Archives: Lies, Damn Lies, And Statistics

Cornerstone Releases Report on 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.”

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Compare and Contrast

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.”

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Compare and Contrast

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.”

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Cornerstone Releases Report on Settlements

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.”

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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.

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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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Compare and Contrast

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2010 annual reports on securities class action filings. The different methodologies employed by the two organizations have led to different numbers, but the trendlines are the same.

The findings for 2010 include:

(1) Filings are up slightly, with a decrease in credit-crisis filings being offset by an increase in regular filings (including a sharp uptick in M&A-related filings). NERA counts 239 filings (estimated total and up from 220 filings in 2009) and Cornerstone counts 176 filings (up from 168 filings in 2009). For some insight on why NERA has a larger total, see footnote 3 of the NERA report, which discusses its counting methodology.

(2) NERA found that the median settlement value was $11.1 million in 2010, over 30% higher than the 2009 median settlement value and the first time ever that the median has exceeded $10 million. Excluding outlier cases, the average settlement value was $42 million, in line with last year’s record high.

(3) Cornerstone examined the litigation exposure following initial public offerings (IPOs). The report concludes that the highest risk is in the first few years after an IPO, when the company’s stock price continues to be volatile. Indeed, a newly-public company has a 10 percent of being subject to a securities class action in the first three years after its IPO.

Quote of note (John Gould – Cornerstone): With the wave of credit-crisis filings behind us, the industry focus for class action filings shifted to Health Care, where more than one out of every seven S&P 500 companies was involved in a class action.

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Compare and Contrast

NERA Economic Consulting and Cornerstone Research (in conjunction with the Stanford Securities Class Action Clearinghouse) have released their 2010 midyear reports on securities class action filings. The different methodologies employed by the two organizations have led to different numbers, but the trendlines are the same.

The findings for the first half of 2010 include:

(1) Filings have declined, with a decrease in credit crisis cases being one of the key factors. NERA counts 101 filings (for an annualized total of 202 filings, down from 221 filings in 2009) and Cornerstone counts 71 filings (for an annualized total of 142 filings, down from 168 filings in 2009). For some insight into why NERA has a larger total, see footnote 5 in its report.

(2) The lag time between the end of the class period and the filing date has decreased significantly as compared to the second half of 2009. Cornerstone finds that the median lag time was 25 days, as compared to 112 days in the previous period. NERA finds that the average lag time was 231 days, as compared to 272 days in the previous period. Both organizations conclude that this may be the result of the plaintiffs’ bar, having focused in recent years on credit crisis cases, clearing out a backlog of older matters in the second half of 2009 after credit crisis cases began to decline.

(3) NERA also examined the mid-year settlement trends. Notably, the median settlement value was $11.8 million, exceeding 2009’s value of $9 million by almost one-third. The report concludes that this may be driven by a substantial increase in median investor losses – a variable that correlates strongly with settlement size.

Quote of note (Professor Grundfest – Stanford): “The securities fraud litigation wave stimulated by the credit crisis now appears to be history. We have an inventory of cases waiting to be dismissed, settled, or tried, but to borrow a phrase from the current Gulf oil spill crisis, it seems that this flow has largely been capped.”

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Cornerstone Releases Report On Settlements

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

1) There were 103 settlements in 2009. The aggregate value of those settlements was $3.8 billion (a 35% increase over 2008).

(2) The average settlement amount was $37 million. Although this number is a significant increase over the 2008 average ($28.4 million), it is only slightly higher than the historical average of $34.4 million for cases settled from 1996 through 2008 (excluding the top four settlements).

(3) Since 1996, almost 60% of cases settle for less than $10 million and 80% settle for less than $25 million. The distribution of settlements in 2009 follows this same pattern.

The press release accompanying the report can be found here.

Quote of note (PR – Professor Grundfest): “The classic litigation risk factors continue to run true to form. If a lawsuit is prosecuted by a large pension fund, involves a parallel SEC proceeding, and alleges accounting violations, then defendants can be expected to pay higher amounts.”

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Cornerstone And Stanford Release Report On Filings In 2009

Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a report on federal securities class action filings in 2009. The findings include:
(1) A total of 169 federal securities class actions were filed in 2009, a 24% decrease from the previous year. In particular, filings related to the credit crisis were down sharply (from 100 filings in 2008 to 53 filings in 2009).
(2) The filing activity was more concentrated, with only 114 unique issuers sued (a decrease of 32%, as compared to the overall filing decrease of 24%). The study states that this was the result of a large number of filings against certain groups of mutual and exchange-traded funds.
(3) Despite the decline in credit crisis related filings, the financial sector continued to have the highest level of litigation activity with 84 filings.
(4) Given the long timeline of securities class actions, it takes several years to reach conclusions about the breakdown between settlements and dismissals. The study notes, however, that with more than 90 percent of the 2004 and 2005 filings resolved, there appears to have been an increase in the percentage of dismissed class actions compared to earlier years leading to a nearly 50-50 split. Whether that trend continues remains to be seen.
The joint press release announcing the report can be found here.
Quote of note (Professor Grundfest): “As predicted in last years report, the rate of litigation overall and particularly against financial firms declined from the financial crisis-fueled levels observed in 2008. Plaintiffs simply ran out of financial firms to sue, and the rising stock market made it harder for plaintiffs to assert claims.”

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