Credit Crisis Cases Spur Shareholder Class Action Filings to Highest Level in Six Years

18 December 2008

New York/18 December 2008 -- The ongoing credit crisis and turmoil in the financial sector have fueled a major surge in securities class action litigation in 2008, according to a new study from NERA Economic Consulting. Filings are projected to reach 267 by year's end, which would represent a 37% increase over 2007 and the largest annual total since 2002. Excluding atypical cases (related to the IPO securities litigation, analyst cases, and mutual fund market timing), filings in 2008 are on pace to reach a 10-year high.

According to NERA's study, 2008 Trends in Securities Class Actions, the credit crisis is the most significant factor contributing to the increase, continuing a trend that began in 2007. Of the 255 cases filed as of 14 December 2008, 43% or 110 are related to the credit crisis, nearly tripling from 40 in 2007.

Settlement Values Remaining Steady -- For Now

While filings have steadily increased from 2006 through 2008, median settlement values have remained relatively stable. The 2008 median settlement resolved for $7.5 million, below the 2007 median of $9.4 million, and above the 2006 median settlement of $7.0 million.

Although it is too early to tell what impact the surge in credit crisis filings may have on future settlement values, there are two intriguing hypothetical outcomes, according to study co-author Dr. Stephanie Plancich. Historically, large investor losses have been positively correlated with a larger settlement size, and the median investor loss for a credit crisis case in 2008 is almost $3.5 billion -- approximately nine times the median amount of a non-credit crisis case filed this year ($387 million). This suggests that average and median settlement sizes could grow in the future as these cases begin to be resolved

"On the other hand," says Dr. Plancich, "defendants with 'deep pockets' are the ones who can afford big settlements. However, the credit crisis has dramatically shrunk the size of many defendants' pockets. The financial distress faced by defendant companies could therefore pull median settlement values down."

Other Notable Findings of the Study Include:

  • Nearly 50% of all filings in 2008 named a company in the finance sector as the primary defendant.
  • Auction-rate securities cases peaked in the first half of 2008, following the massive failure of auctions in late February. The pace of these filings has since slowed, but they have not disappeared.
  • The concentration of filings in the Second and Ninth Circuits remains a continuing trend, with a particular spike in the Second Circuit in 2008 due to a clustering of credit crisis cases in this Circuit.

Securities Class Action Trends Report Series
NERA has been analyzing trends in securities class actions for more than 15 years. Two reports are published a year: one at mid-year and an annual review published at year's end. This year-end report was authored by NERA Senior Consultant Dr. Stephanie Plancich and Consultant Svetlana Starykh, and includes data on filings through 14 December 2008, and settlements through 31 December 2008.

For more details, and to read the full report, visit www.nera.com/recenttrends.

NERA provides practical economic advice related to highly complex business and legal issues arising from competition, regulation, public policy, strategy, finance, and litigation. Founded in 1961 as National Economic Research Associates, our more than 45 years of experience creating strategies, studies, reports, expert testimony, and policy recommendations reflects our specialization in industrial and financial economics. Because of our commitment to deliver unbiased findings, we are widely recognized for our independence. Our clients come to us expecting integrity and the unvarnished truth.

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For over half a century, NERA's economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world's leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

NERA's clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world's largest economic consultancies. With its main office in New York City, NERA serves clients from more than 25 offices across North America, Europe, and Asia Pacific.