Options Backdating Settlements Lower Than Predicted, According to New NERA Economic Consulting Paper
15 May 2008
First released on 15 May 2008, this paper was updated on 4 June.
New York (15 May 2008) -- Despite the widespread attention given to options backdating by investors, regulators, the legal profession, and the news media, shareholder litigation in the area has not generated the sizeable settlements previously anticipated by industry observers. This according to a new white paper by NERA Economic Consulting, "Do Options Backdating Class Actions Settle for Less?" released today and co-authored by Senior Consultants Robert Patton and Dr. Branko Jovanovic and Consultant Svetlana Starykh.
Of nearly 250 companies identified as potentially involved in backdating, only 37 have actually been the target of a related federal shareholder class action lawsuit. The NERA paper examines the six federal shareholder class actions that have fully settled thus far (meaning settlements have been reached with all defendants).
In each case, the authors compare the size of the actual settlement to the amount predicted by NERA's shareholder class action settlement predictor model, which predicts the most likely settlement for a case based on the level of "investor losses" and other lawsuit characteristics. They find that the amounts paid to plaintiffs in the six cases that have settled to date have been substantially lower than in comparable non-backdating class actions. In fact, class actions involving backdating allegations have on average settled for less than half the amounts predicted by NERA's model.
The authors hypothesize that this disparity in settlement amounts is due to either a perceived weakness on the merits of backdating versus non-backdating cases, or the possibility that the weakest backdating cases have settled first -- in which case future settlements may be more in line with those in other types of shareholder class actions.
The paper includes a summary of predicted and actual settlements for all six cases, including Rambus, Inc., whose final settlement was approved on yesterday. This is the fourth in NERA's backdating series, all of which may be found on the NERA website at www.nera.com/securities.
About NERA
NERA Economic Consulting is an international firm of economists who understand how markets work. Our more than 45 years of experience creating strategies, studies, reports, expert testimony, and policy recommendations reflects our specialization in industrial and financial economics. Our global team of more than 600 professionals operates in over 20 offices across North America, Europe, Asia, and Australia.
NERA Economic Consulting founded in 1961 as National Economic Research Associates, is a unit of Mercer Specialty Consulting, an MMC company.
