Category Archives: Lies, Damn Lies, And Statistics

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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NERA Releases Study on “Recent Trends in Securities Class Action Litigation”

NERA Economic Consulting has released a study entitled Recent Trends In Shareholder Class Action Litigation: 2009 Year-End Update. The study reaches the following notable conclusions:

(1) NERA predicts that there will be 235 filings by year end (down from 253 filings in 2008). Cases related to the credit crisis have fallen to around 30% of all filings, but the finance industry continues to hard hit with 53% of all filings naming a finance sector defendant.

(2) Only 5% of all filings contained insider trading allegations, which is down significantly from the pre-credit crisis period (e.g., 20% of all filings in 2005 and 2006 contained insider trading allegations).

(3) Excluding the IPO allocation cases, the average settlement value was $42 million. Although this is a signficiant increase over the $31 million average settlement value in 2008, the median settlement value stayed relatively flat at $9 million.

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NERA Releases Study on “Recent Trends in Securities Class Action Litigation”

NERA Economic Consulting has released a study entitled Recent Trends In Shareholder Class Action Litigation: 2009 Mid-Year Update. The study reaches the following notable conclusions:

(1) There have been 127 cases filed in the first half of 2009, on pace for over 250 for the full year. As usual, this is a higher number than reported by Cornerstone, presumably due to differences in counting methodology (see footnote 2 of the NERA report).

(2) The credit crisis continues to dominate the landscape, with approximately 67% of the filings in the first half of 2009 naming at least one financial company as a primary defendant or co-defendant (compared to 50% of filings in 2008).

(3) Median settlement values are holding steady at $8 million.

(4) Following the U.S. Supreme Court’s decision in Dura on the pleading of loss causation (April 2005), the dismissal rate for resolved claims appears to have slightly increased.

(5) Securities class actions can take a long time to resolve, making it difficult to accurately assess dismissal rates. Interestingly, the study takes one year’s filings – the 238 cases filed in 2000 – and reports on their status. The result: 60% settled, 34% dismissed, 6% pending or abandoned.

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Cornerstone And Stanford Release Mid-Year Assessment Of Filings In 2009

Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a mid-year assessment of federal securities class action filings in 2009. The findings include:

(1) A total of 87 federal securities class actions were filed in the first half of 2009. At this rate, 174 securities class actions will be filed this year, a 22.3 percent decrease from 2008 and an 11.7 percent decrease from the post-PSLRA annual average.

(2) 42 filings in the first half of 2009 were driven by the credit crisis. 15 filings related to Ponzi schemes, with most of these suits brought by investors in Madoff funds.

(3) In 2008, there were 31 filings (13.8 percent) associated with issuers with non-U.S. headquarters, the highest annual total in the post-PSLRA period. The upward trend has continued in the first half of 2009 with 18 filings against issuers with non-U.S. headquarters, or 20.7 percent of the total.

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2008 PwC Securities Litigation Study

PricewaterhouseCoopers has released its annual review of securities class actions. The findings include:

(1) A total of 210 securities class actions were filed in 2008, an increase of 29% over the previous year. For the first time, financial services topped the list of industries sued.

(2) The number of filings against foreign companies increased 33% to a total of 36 filings in 2008 (an all-time high).

(3) The number of filings with SEC or DOJ involvement remained relatively constant. In 2008, 36 filings had some form of SEC involvement and 21 filings has some form of DOJ involvement.

Quote of note: “Over the next year, three areas where companies will want to remain especially vigilant are institutional plaintiff activity (particularly activity related to public and union pension funds), internal controls accounting-related allegations, and FCPA enforcement.”

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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 99 settlements in 2008. The aggregate value of those settlements was $3.1 billion.

(2) The median amount for cases settled in 2008 was $8 million (down from the all-time high of $9 million in 2007). The average settlement amount was $31.2 million – which is in line with the historic average if the top four settlements of all time are removed from the analysis.

(3) Reversing a recent upward trend, the number of settled cases involving companion derivative suits fell from 55% in 2007 to 40% in 2008.

 

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Cornerstone And Stanford Release Report On Filings In 2008

Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a report on federal securities class action filings in 2008. The findings include:

(1) There were were 210 filings (through 12/15), a 19% increase over the previous year. As usual, Cornerstone reports a lower number of filings than NERA, presumably due to different counting methodologies.

(2) Almost half of the 2008 litigation activity, or 103 securities class actions, involved firms in the financial services sector. Indeed, nearly a third of all large financial firms were a named defendant in a filing.

(3) For the first time since 2002, companies listed on NYSE or Amex had more securities class action
filings than companies listed on NASDAQ (likely because of the plaintiffs’ focus on the financial sector).

(4) Among the resolved class actions filed since 1996, 41 percent were dismissed and 59 percent settled. The majority of cases were resolved after the first ruling on the motion to dismiss but before a ruling on summary judgments, with 71 percent of dismissals and 59 percent of settlements occurring during this stage.

Quote of note (Professor Grundfest): “The data suggests an intriguing possibility that the pool of major financial services defendants might be getting fished out.Many major financial services firms have already been sued and plaintiffs may be choosing to focus on filing amendments to existing complaints rather than initiating new ones. Litigation activity against the financial sector may decline next year because the supply of new defendants might be drying up, not necessarily because plaintiffs believe there is less fraud.”

The D&O Diary has an interesting analysis of the report and predicts another big year for filings in 2009.

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