Class Action Settlements Topped $3 Billion in 2015: Cornerstone Research

March 31, 2016

There were 80 securities class action settlements approved in 2015, the highest number since 2010, and total settlement dollars rose to more than $3 billion, according to research by Cornerstone Research.

The report, “Securities Class Action Settlements—2015 Review and Analysis,” shows that total settlement dollars in 2015 were 9 percent higher than the average for the prior five years and up 184 percent over the historic low in 2014.

The authors suggest that the high number of settlements is likely to continue for the next few years due to the number of cases in the pipeline.

In 2015 there were eight mega settlements ($100 million or greater), compared to only one in 2014. This increase was likely driven by a corresponding rise in cases with very high “estimated damages,” a simplified calculation representing a proxy for damages, according to the report’s authors. The median “estimated damages” for mega settlements in 2015 was the second highest in the last 10 years.

The surge in settlements in 2015 can be attributed in part to three consecutive year-over-year increases in the number of case filings, according to Laura Simmons, a senior advisor of Cornerstone Research and a co-author of the report. “The increases in case filings may suggest that higher numbers of settlements will persist in the near future,” she said. “While settlement volume fluctuates from year to year, the size of the typical settlement tends to remain fairly consistent.”

Professor Joseph A. Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, said that settlements in class action securities litigation can be rather predictable. “You can only get a high settlement value for a strong case that alleges substantial damages, and those factors can often be assessed relatively early in the litigation process,” he said. “When the number of mega filings is up, you can expect an increase in mega settlements three or more years down the road, with the larger settlements taking longer to reach, and that’s the process that seems to be at work in the 2015 settlement data.”

While larger damages appear to have driven up settlement values for some cases in 2015, other factors associated with higher settlements were less prevalent, according to the report. For example, the proportion of settlements of $50 million or greater involving financial statement restatements, public pension plan lead plaintiffs, and/or Securities and Exchange Commission (SEC) actions was lower than most years since the passage of the Private Securities Litigation Reform Act of 1995.

In 2015, 35 percent of accounting-related cases had a named auditor defendant, representing a 50 percent increase over the prior 10-year average. Underwriter defendants were named in 76 percent of cases with Section 11 claims.

The proportion of securities class action settlements involving financial sector firms was lower in 2014 and 2015 compared to prior years. However, the report notes, these cases continue to be some of the largest when measured by “estimated damages.” In 2015, 55 percent of financial sector cases had “estimated damages” greater than $1 billion

Other research findings by Cornerstone:

  • The average settlement size increased from $17 million in 2014 to $37.9 million in 2015 (an increase of 123 percent), while the median settlement amount (representing the typical case) remained relatively flat ($6.0 million in 2014 and $6.1 million in 2015).
  • Average “estimated damages” rose 151 percent from 2014. Since “estimated damages” is the most important factor in predicting settlement amounts, this increase contributed to the substantially higher average settlement amounts in 2015.
  • Median settlements as a percentage of “estimated damages” decreased to historic low levels in 2015.
  • The Second and Ninth Circuits continued to lead all circuits in the number of settlements.

Cornerstone Research provides economic and financial consulting and expert testimony in complex litigation and regulatory proceedings.

Source: Cornerstone Research

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