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In 2005 and the first two months of 2006, the list of the 10 largest shareholder class action settlements changed dramatically, according to this newly released edition of NERA's semi-annual study. Co-authored by NERA Senior Vice President Dr. Elaine Buckberg and Vice Presidents Todd Foster and Dr. Ronald I. Miller, the study reveals that seven slots on the list are now filled by 2005 and 2006 settlements, with two of those involving non-US companies -- which may be chilling news to non-US issuers already wary of being embroiled in US litigation.
However, the authors note that while mega-settlements continue to make headlines, for the greater mass of shareholder class action defendants the situation appears to be stabilizing. The study is based on more than 10 years of research on case filings and settlements in shareholder class actions.
The study's key findings also include:
- Average settlement values hit a new peak in 2005. Excluding WorldCom and Enron, the mean settlement value reached $24.3 million, exceeding the prior high of $23.7 million in 2002. Including WorldCom would bring the average to nearly $71 million.
- Dismissal rates have doubled since the passage of the Private Securities Litigation Reform Act. While dismissals accounted for only 19.4 percent of dispositions for cases filed between 1991 and 1995, dismissals accounted for 40.3 percent of dispositions in the 1998-2003 period.
- Median settlement values in 2005 hit $7 million, exceeding the past record by more than 15 percent and the 2004 level by one-third.
- Based on the 2003-2005 filing rate, over a five-year period the average public corporation has nearly a 10-percent probability that it will face at least one shareholder class action lawsuit.
The authors also note that, because many of the largest suits in this recent period have class periods ending during the collapse of the stock market bubble in 2000-2002, average settlements are not likely to rise further over the next two or three years and may even fall. Their analysis indicates that the high value of settlements in 2002-2005 is due to higher investor losses, not due to changes in the litigation environment.
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