Securities Class Action Filings Remain High in Credit Crisis Era

15 December 2009

New York -- The credit crisis, now in its third year, and related financial sector turmoil continue to fuel new federal securities class action filings in 2009, according to NERA Economic Consulting's bi-annual report, Recent Trends in Securities Class Action Litigation: 2009 Year-End Update, released today.

According to NERA's report, securities class action filings are expected to reach 235 cases in 2009, down from 253 filings in 2008. While filings may have declined year-over-year in 2009, they still greatly exceed the 130 filings in 2006, before the start of the credit crisis.

Credit Crisis Filings Waning

While the credit crisis continued to drive filings activity in 2009, with over 60 credit crisis cases filed through 30 November, the pace of these cases has gradually declined throughout the year. Credit crisis-related filings in the first half of 2009 outnumbered second-half filings by approximately two to one.

In 2008, over 40% of cases filed were credit crisis cases. To date in 2009, however, this proportion has decreased to around 30%.

Exchange-Traded Fund Litigation -- A New Phenomenon?

According to the Recent Trends in Securities Class Action Litigation authors, one source of the increase in securities class action filings in 2009 is the wave of filings on behalf of investors in various exchange-traded funds (ETFs), a new litigation phenomenon. In these cases, investors typically allege that the defendants failed to disclose risks and the probability of potential losses associated with the investments.

Thirteen ETF-related securities class action cases were filed between August and November 2009.

Trends in Settlement Values

The average securities class action settlement in 2009 is $12 million, the lowest settlement value in this decade. This low average, however, is driven by an "outlier" settlement -- the 309 IPO laddering cases which were settled for an aggregate $586 million, but an average of less than $2 million per case. Removing this outlier, the average settlement value in 2009 is $42 million.

The median settlement value excluding IPO laddering settlements, a much better indicator of actual trends, is $9 million for 2009 -- similar to the 2007 and 2008 medians.

Future Shareholder Monetary Settlements to Rise?

"We find that investor losses, which can be calculated using publicly available data, historically have been the single most powerful determinant of settlements," said Dr. Stephanie Plancich, NERA Senior Consultant and report co-author. "In recent years, median investor losses for settled cases have been well over $300 million. For cases filed in 2008 and 2009, though, median investor losses have been almost 40% higher, over $500 million. This may be an indication that although there has not been an upward trend in recent settlements, future settlements may be larger once these recently filed cases begin to settle in more substantial numbers."

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 and dismissals through 30 November 2009, and settlements through 31 December 2009.

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

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.