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NERA Economic Consulting's annual study of shareholder class action litigation reveals a new era of unprecedented settlements, with some of the nation's larger corporations making bigger-than-ever payments to shareholders in compensation for losses in the recent bear market. In a new trend, some of these companies are also instituting corporate governance reforms as part of their settlements.
The report, titled "Recent Trends in Shareholder Class Action Litigation: Bear Market Cases Bring Big Settlements" and authored by NERA Senior Vice President Dr. Elaine Buckberg, Vice Presidents Todd Foster and Dr. Ronald Miller, and Senior Consultant Dr. Stephanie Plancich, is based on a NERA study of securities class action filings, settlements and investor losses in 2004.
The authors found that securities class action filings against WorldCom, Raytheon and Bristol-Myers Squibb produced three of the eight largest class action settlements of all time -- with a combined value of over $3.3 billion, more than twice the combined value of the largest settlements of 2003 made by Lucent Technologies, Rite Aid, DaimlerChrysler and Oxford Health Plan.
According to NERA, these top-ranking settlements contributed to a 33% increase in mean settlement value to $27.1 million in 2004, up from $20.3 million in 2003. Of the 119 settlements made last year, nine were valued at $100 million or more; 16 settlements exceeded $50 million (including SEC settlements). Fueling the trend, according to the report, are payouts to investors battered in the recent bear market. Investor losses ballooned from $140 million in the average suit settling in 1996 to $2.5 billion in 2003 before dropping to $1.7 billion in 2004.
Meanwhile, the 2002 Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act (SOX) was found to have no statistically significant effect on settlement values. According to the authors, the real impact of SOX on shareholder class actions appears to have been on the trend toward incorporating corporate governance reforms into settlements. Since the passage of that legislation, at least nine settlements have incorporated such reforms, including cases involving AON Corporation, HCA Inc. and Ingersoll-Rand Company, among others.
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