Number of Securities Class Action Settlements Plummet to Record Lows in 2012, According to Biannual Report by NERA Economic Consulting

29 January 2013

Filings of Merger Objection Class Actions Offset Declines in Credit Crisis Litigation and Cases with Chinese Company Defendants

New York -- The number of securities class action cases resolved in 2012 plummeted to record lows according to Recent Trends in Securities Class Action Litigation: 2012 Full-Year Review, a biannual report released today by NERA Economic Consulting.

One hundred and fifty-two cases were dismissed or settled in 2012, compared to the 244 securities class actions resolved in 2011. Only 93 securities class actions were settled in 2012 -- also a record low since 1996 and a 25% reduction over 2011.

Filings of securities class actions only slightly declined in 2012, with a total of 207 class actions filed in federal courts last year, compared to the average rate of 221 over the previous five years. Trends authors also observed a decline in the pace of filings over the course of 2012, with the fewest filings occurring in December.

Sizeable reductions in credit-crisis litigation and cases with a Chinese company as defendant were largely offset by filings of merger objection cases, which accounted for 25% of new filings in 2012. Of the 53 merger objection cases filed in federal court in 2012, 33 cases allege a violation of Section 14 of the Securities Exchange Act, while the remaining 20 allege breach of fiduciary duty, but no violation of federal securities law.

Filings of “standard” securities class actions, those involving alleged violations of Rule 10b-5, Section 11, or Section 12, have declined in recent years compared to the period of 2005-2008. Such filings accounted for 142 cases in 2012, compared to the average of 144 class action cases annually during 2009-2011 and the average of 173 cases from 2005-2008.

“There have been some interesting developments in securities class actions in 2012. A large reduction in the number of cases settled was coupled with an even larger reduction in the number of cases dismissed, yet settlement dollars have increased.” said NERA Senior Consultant and Trends co-author Dr. Renzo Comolli. “Meanwhile, in the last few years, plaintiffs’ attorneys’ fees have been getting compressed. All of this happens against the backdrop of new filings that are changing more in nature than in number.”

Key Findings of Recent Trends in Securities Class Action Litigation: 2012 Full-Year Review

Case Resolutions

  • A record of 152 cases were dismissed or settled in 2012, the lowest number of any year since 1996. It corresponds to a 37% reduction from 2011, when 244 securities class actions were resolved.
  • Ninety-three securities class actions were settled in 2012, a 25% reduction over 2011 and also the lowest number of settlements since 1996.

Settlement Amounts

  • The average settlement amount in 2012 was $36 million, only slightly above the $35 million average over 2007-2011 [excludes settlements above $1 billion, settlements in IPO laddering cases, and settlements in merger objection cases].
  • The median settlement amount in 2012 was $12 million, the highest since passage of the PSLRA. Last year, 2012, was only the second year in which the median settlement exceeded $10 million.
  • The total value of all settlements in 2012 reached $3.3 billion.

Filings

Allegations

  • In 2011, 31% of filings contained allegations of breach of fiduciary duty; 29% had allegations involving misleading earnings guidance; and close to 25% of filings included accounting allegations.

Foreign Companies

  • Case filings against foreign-domiciled companies declined in 2012, from the record 62 cases in 2011. Filings against Chinese companies also dropped significantly in 2012 with 16 suits versus the 37 in 2011.

Circuit

  • Forty-three percent of all filings in 2012 were concentrated in the Second Circuit (56 cases) and Ninth Circuit (four cases). Filings in the Ninth Court dropped significantly over the 60 cases filed in 2011.

Sector

  • Securities class action filings against defendants in the finance sector continued to decline in 2012, accounting for 13% of filings, compared to the peak of nearly half of all filings in 2008 and 2009. The health and technology services sector accounted for 22% of securities class action filings; and energy and non-energy minerals sector grew to 10%.

Time to File

  • In 2012, the average time to file was 110 days, down from a high of 229 days in 2009 and 153 days in 2011. The percentage of cases that are filed within one year has also been increasing, from 66% in 2009 to 92% in 2012.

Motions

  • A motion to dismiss was filed in more than 96% of securities class actions over the 2000-2012 period. Of those motions, 47% were granted; 15% were voluntary dismissed by plaintiffs; 14% were denied in their entirety; and 17% of the motions were granted in part.
  • The fraction of motions to dismiss that are granted has increased in recent years.
  • Among securities class actions that were settled, in 46% of such cases a motion to dismiss was partially granted or partially denied, while in 37% of cases a motion was simply denied.
  • Seventy-seven percent of all securities class actions are resolved before a motion for class certification is filed. In 75% of cases where decision was reached on motion for class certification, the class was certified (at least in part).

Plaintiffs’ Attorneys’ Fees and Expenses

  • While aggregate plaintiffs’ attorneys’ fees and expenses for all federal settlements increased by 4% of 2011 ($653 million in total for 2012), fees as a whole have declined over the period of 2010-2012 compared to 1996-2009.

NERA Securities Class Action Trends Report Series

NERA has been analyzing trends in securities class actions for more than 20 years. Two reports are published per year: a mid-year study and an annual review at year's end. This year-end study, Recent Trends in Securities Class Action Litigation: 2012 Full-Year Review, is co-authored by Dr. Renzo Comolli, Dr. Ronald I. Miller, Svetlana Starykh, and Sukaina Klein.

For more details and to read the 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.

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