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Shareholder class action settlements are at all-time highs, according to this newly released study of federal class action litigation filings, settlement values, and dispositions between January 1991 and June 15, 2005. According to the study, the latest growth is being fueled by settlements in the WorldCom and Enron cases, which are setting new standards for shareholder compensation.
Topping $6.1 billion, the WorldCom shareholder class action settlement is close to double the previous record of $3.5 billion established five years ago in the Cendant Corp. settlement. In addition, the settlement expected at the conclusion of Enron's shareholder class action may be even larger, with preliminary settlement agreements already approaching $5 billion.
Co-authored by NERA Senior Vice President Dr. Elaine Buckberg and Vice Presidents Todd Foster and Dr. Ronald I. Miller, the study's key findings include:
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Large settlements are likely to continue as lawsuits filed during the bear market of 2000-2002 progress toward settlement. |
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Investor losses continue to be the single most powerful, publicly available determinant of settlements.
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A sharp decline in settlements of under $3 million is also fueling new highs in median settlements. In the first six months of 2005 alone, the median settlement value of securities class action cases jumped nearly 30% to $6.8 million. |
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Bigger settlements are yielding lower percentage fees for plaintiffs' counsel, though total plaintiffs' attorneys' fees continue to rise. The average settlement in 2005 will yield over $6 million in fees to plaintiffs' counsel, compared to $3.6 million five years ago. |
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Federal class action filings are down by 17 percent for the first half of 2005, though the slowdown may be temporary. |
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In the first six months of 2005, the mean settlement value for securities class action reached $25.8 million, exceeding the prior high of $23.5 million in 2002; these statistics exclude the WorldCom, Enron, and Cendant settlements. |
The authors note that the settlement of the WorldCom and Enron shareholder class actions will bring to an end two of the cases that epitomized the alleged megafrauds that occurred during the stock market bubble and were revealed by its bursting. But these cases are part of a broader process in which shareholder class action cases with class periods ending during the bear market of 2000-2002 are reaching settlement.
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