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.
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.
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.
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.”
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.
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.
NERA Economic Consulting has released a study entitled 2008 Trends in Securities Class Actions. The study reaches the following notable conclusions:
(1) There have been 255 securities class action filings this year (through Dec. 14), on pace for a 10-year high for “standard” cases.
(2) Credit crisis-related cases made up approximately 50% of the filings, causing a spike in the number of filings against financial sector companies.
(3) Median and average settlement values have held roughly steady at $7.5 million (median) and $29 million (average, excluding settlements over $1 billion).
The press release accompanying the report can be found here.
The mid-year numbers are in on securities class action filings and settlements. This week saw the publication of 2008 Trends: Subprime and Auction-Rate Cases Continue to Drive Filings, and Large Settlements Keep Averages High from NERA Economic Consulting and 2008 Mid-Year Assessment from Cornerstone Research.
(1) The reports agree that filings are on the upswing, although they differ on the exact number. Cornerstone finds that there were 110 filings in the first half of 2008, while NERA finds that there were 139 filings in the first half of 2008. Both reports agree that around half of the total filings were related to subprime mortgage/credit crunch problems. On an annualized basis (using either report’s total), the number of filings will be up significantly as compared to the past three years.
(2) Overall market volatility is an additional factor driving the increase in filings. NERA reports that nearly one-third of companies whose stock fell by 40% or more in a single day, net-of-market, were confronted with a federal filing within three months.
(3) The market capitalization losses associated with the subprime mortgage/credit crunch filings are significantly higher than usual. NERA concludes that although the average settlement value in the first half of 2008 remained constant at around $30 million, that number is likely to rise as more recent filings reach settlement.
PricewaterhouseCoopers has released its annual review of securities class actions. The findings include:
(1) There were 163 filings in 2007, an increase of nearly 50% over the previous year. Subprime cases accounted for 37 of the filings.
(2) The number of filings associated with financial restatements was relatively small – 39 cases – suggesting that the “market reaction to restatements is declining.”
(3) The number of filings with some form of SEC involvement (investigation or enforcement action) fell for the third year in a row to just 24 cases (approximately 15% of total).
(4) There was a sharp increase in the number of filings against foreign private issuers, with 27 cases in 2007 (compared to 14 cases in 2006).
Quote of note: “During hard times, the increased pressure to produce good financial results is more likely to lead to bad behavior, which in turn is likely to result in higher levels of shareholder litigation. If current speculation on the downward direction of the economy is to be believed, then private securities class actions will most likely trend upward over the next few years, above the recent average number of filings since Sarbanes-Oxley.”
Cornerstone Research has released an updated report on post-PSLRA settlements of securities class actions through December 2007. The findings include:
(1) There were 111 settlements in 2007. The aggregate value of those settlements, excluding the enormous Tyco settlement, was $3.8 billion.
(2) The median settlement value was $9 million in 2007, the highest in the post-PSLRA period. The report attributes the increase, in part, to the fact that the percentage of cases settling for $10-20 million increased substantially from prior years (to approximately one-quarter of all settlements).
(3) The number of settled cases involving companion derivative actions is increasing. More than 55 percent of cases settled in 2007 were accompanied by the filing of a derivative action, compared with 45 percent in 2006 and 35 percent in 2005. Settlements for securities class actions accompanied by derivative cases are significantly higher than for cases not involving them.
The press release announcing the report can be found here.