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Member, Beacon International Group, Ltd.
The cost of settling securities class action lawsuits in 2009 increased by 35% over 2008, according to a report released Wednesday.
The report by Boston-based Cornerstone Research, concluded that settlement costs increased in 2009 due to a variety of factors but still remain below the levels seen between 2005 and 2007. The median settlement in securities class action cases was $8 million in 2009, compared with a median settlement of $7.4 million between 1996 and 2008.
“While the increase in the number of settlements approved was relatively small…in dollar terms, the value of cases settled in 2009 represented more than a 35% increase over the corresponding amount in 2008,” the report said.
The 2009 settlements involved financial firms more than other sectors, followed closely by pharmaceutical and high-tech firms. Of the cases involving financial firms, all settlements were for shareholder suits and not for credit crisis-related claims, the report noted.
In the past four years, plaintiffs and defendants have settled more slowly, taking an average of three and a half to four years from the filing date. Previously, cases took an average of three years to settle, the report said.
In addition, the report noted that after a dramatic decline in average estimated plaintiff damages in 2008, that figure increased significantly in 2009, although it remains less than 2006 and 2007 levels.
The report identified numerous factors that correlated with higher settlement amounts, including alleged violations of generally accepted accounting principles, having an underwriter or outside auditor named as a defendant, having a pension plan or an institutional investor as a plaintiff, and the involvement of the U.S. Securities and Exchange Commission.