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Issue March 16, 2009 |
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BOSTON—The average securities class action settlement fell 50% to $31.2 million in 2008, according to a report released by Cornerstone Research last week, but authors of the report note this trend may not continue.
The report, "Securities Class Action Settlements: 2008 Review and Analysis," said the sharp drop can be attributed to the decline in multibillion-dollar settlements. The median settlement amount of cases in 2008 was $8 million, compared with $9 million in 2007, an all-time high for all cases settled between 1996 through 2007, according to Boston-based Cornerstone.
In 2008, more than half of the settlements were for less than $10 million, a trend that also was true in 2007, according to the report. The percentage of cases involving damages in excess of $1 billion, also known as "mega cases," fell to about 20%, the lowest rate in five years and well below the peak of 35% in 2006.
The total number of settlements in 2008 dropped to 99 from 110 the previous year. The decline, Cornerstone analysts said, is unlikely to be a trend in upcoming years.
Meanwhile, the average length of the class period reached a new high of 800 days in 2008, which is nearly a year longer than the average for all prior settlements through 2007, according to the report. That average is about 518 days.
"Plaintiffs are trying to extend the damage period and increase the damages amount as much as possible," said Laura Simmons, assistant professor at the College of William & Mary Mason School of Business in Williamsburg, Va., and co-author of the report.
What's unknown is how the recent financial market crisis will affect settlements in the future. Ms. Simmons and report co-author Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, said they anticipate an increase in litigation as a result of the meltdown and they expect those cases that already have been filed to have an impact on the settlement volume within the next year or two.
Moreover, with more companies and financial institutions taking federal money as a result of the government's bailout program, Mr. Grundfest said it's likely the taxpayer, rather than the company or financial institution, will pay the settlements.
"Settlements of pending actions against (Troubled Asset Relief Program) recipients will raise novel public policy issues," Mr. Grundfest said in a statement. "Taxpayer dollars, will, one way or another, fund these settlements. This simple fact could set off a debate whether taxpayers should pay for these settlements, and about the effectiveness of the class action litigation mechanism altogether."
For reprints of this story, please contact Lauren Melesio at 212-210-0707 or email lmelesio@crain.com
