Settlement Trends in Securities Class Actions

The future of securities class actions may hinge on the decision of the Supreme Court in Halliburton Co. V. Erica P. John Fund, Inc., No. 13-317 which is expected to be handed down by the end of the current term on June 30, 2014 (here). Last year, however, the number of actions filed continues to increase as noted earlier (here). Likewise, the number of settlements last year and their value, also increased last year, according to a new report by Cornerstone Research. Securities Class Action Settlements, 2013 Review and Analysis (here).

Last year 67 securities class actions settled. That is the largest number since 2010 when 85 cases settled. In 2012 57 securities class actions settled while in 2011 65 cases were resolved.

The total settlement dollars evidenced similar trends. The 67 settlements recorded last year yielded $4,774 million compared to the prior year when the total value was $3,264 million and 2011 when it was $1, 411 million. In fact the total settlement dollars last year was the largest since 2007 when it was $8,131 million.

At the same time, it is clear that a small number of large resolutions accounted for most of the settlement dollars. Specifically, last year six settlements accounted for 84% of the total settlement dollars. Yet between 2004 and 2013 over half of the securities class actions settlements were for less than $10 million and over three quarters of those resolutions were for less than $25 million.

Over the last several years the average amount of dollars paid to settle a securities class action has trended up. In 2013 that average was $71.3 million, up from $57.3 million in 2012, $21.7 million in 2011, $38.1 million in 2010 and $40.7 million in 2009.

The most prevalent claim in the post reform act period has been one based on Exchange Rule 10b-5. Suits based only Securities Act Sections 11 and/or 12(a)(2) were the least prevalent. However, the highest median settlement value over the period was achieved when the claims were combined. The median settlement value for Rule 10b-5 cases was $6.8 million during the period compared to $3.4 million for Section 11 and/or 12(a)(2) cases. When the Exchange Act and Securities Act claims were combined the median settlement amount increased to $11.7 million.

Higher settlement values were typically achieved when a public pension fund served as lead plaintiff. In 2013, for example, the median settlement when a public pension fund served as lead plaintiff was $23 million while in 2012 it was $22 million and $19 million in 2011. In contrast, in 2013 the median settlement value in actions where a public pension fund did not serve as lead plaintiff was $3 million, compared to $4 million in 2012 and $11 million in 2011.

Finally, the number of settled securities class actions with a parallel SEC case continued to fall last year. In 2013 about 19% of those actions had a parallel case brought by the Commission. That compares to 21% the prior year and 23% in the post reform act era. Interestingly, the median settlement of cases with a parallel SEC action in the post reform act period is $12.9 million, more than twice the median settlement value for cases without a parallel SEC action.