Big Settlements Drove Value of Securities Class Actions Above $5 Billion in 2018

April 1, 2019

The total settlement value of securities class actions rose sharply to $5 billion in 2018, driven by five settlements of at least $100 million, according to a report by Cornerstone Research.

The report, Securities Class Action Settlements—2018 Review and Analysis, found that the total settlement amount approved by courts dramatically surpassed 2017’s near-historic low of $1.5 billion and was 50 percent higher than the annual average for the prior nine years. A single $3 billion settlement accounted for much of the increase in 2018. There was also a notable uptick in settlements valued between $10 million and $50 million.

The total settlement amount approved by courts dramatically surpassed 2017’s near-historic low of $1.5 billion.

At the same time, the number of settlements declined slightly to 78 from 81 settlements in 2017. The average settlement amount, however, increased from $18.7 million to $64.9 million, and the median amount (representing the typical case) rose from $5.1 million in 2017 to $11.3 million in 2018.

Small settlements (below $5 million) declined by nearly 40 percent, from 40 cases in 2017 to 25 in 2018.

“It was unusual to see the significant increase in average and median settlement amounts in 2018, as a number of factors typically associated with higher settlements actually decreased,” said Dr. Laura E. Simmons, a report coauthor and a Cornerstone Research senior advisor. “Based on observable data, our results suggest that the increase is, at least in part, driven by economic factors rather than case merits.”

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

The increase in settlement dollars was also accompanied by an increase in the ratio of settlement amounts to a proxy for plaintiff-style damages, referred to in the report as “simplified tiered damages.” The median ratio increased to 6.0 percent in 2018, compared to a median of 5.1 percent for the prior nine years, according to the report.

“Publicly traded corporations have reason to be concerned over the data,” said Professor Joseph A. Grundfest of Stanford Law School, a former Commissioner of the Securities and Exchange Commission. “Increased payouts may pressure insurance carriers to raise the rates they charge and the retentions they impose—which could be challenging developments for corporations, boards, and executives.”

Key Trends Cited in Cornerstone Report
  • The number of midsize settlements increased in 2018, with 32 cases settling from $10 million up to $50 million, representing an approximate 60 percent increase over 2017.
  • Average “simplified tiered damages”—a measure of potential shareholder losses based on the dollar value of a defendant’s stock price movements on specific dates and an estimate of the number of shares traded during the class period—rose 45 percent to $687 million. Median “simplified tiered damages” rose 88 percent to $250 million, compared to the 2017 low of $133 million.
  • The proportion of settled cases involving alleged GAAP violations in 2018 was 45 percent, continuing a four-year decline from a high of 67 percent in 2014.
  • The percentage of 2018 settlements with a companion derivative action rose to 55 percent, up from 47 percent in 2017.
  • The level of corresponding actions brought by the Securities and Exchange Commission has remained relatively stable, as 21 percent of the 78 cases settled in 2018 involved an accompanying SEC action (the same rate as in 2017).
  • The median settlement amount in 2018 for cases taking more than two years to settle was almost five times the median settlement amount for cases that settled within two years.

Source: Cornerstone Research

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