Recent Trends in Shareholder Class Actions: Filings Return to 2005 Levels as Subprime Cases Take Off; Average Settlements Hit New High

Fri Dec 21 15:24:38 EST 2007
By Dr. Stephanie Plancich and Svetlana Starykh et al.

The 18-month decline in shareholder class action filings has definitively reversed course, with 2007 federal filings projected to increase by 58% compared to the previous year, according to this newly released edition of NERA's semi-annual study. Co-authored by Vice President Dr. Stephanie Plancich and Senior Consultant Svetlana Starykh with former NERA Consultant Brian Saxton, the study draws from more than 15 years of NERA research on case filings and settlements in shareholder class actions, and includes data through 15 December 2007.

The latest edition projects that there will be 207 federal filings by year end, following just 131 filings in 2006. Despite widespread speculation that filings would continue to decline, the trend has reversed course and filings are back up to 2005 levels, as NERA predicted in its mid-year review of filings from January through June 2007.

The sharp increase in filings has been driven in part by litigation related to subprime lending. As of 15 December, 38 subprime shareholder class actions had been filed in 2007. Subprime lending does not explain the entire trend, however: standard federal filings excluding subprime or options backdating cases also increased nearly 40% from 2006 to 2007.

The authors report that average settlements have also spiked this year, continuing an overall upward trend over the past five years. Still, 2007 marked a notable increase: the average settlement paid to resolve a shareholder class action case in 2007 was $33.2 million, up nearly 50% from 2006. The median settlement also reached a new high in 2007, at just under $10 million.

Looking ahead to 2008, the authors' findings suggest that market conditions indicate that filings are likely to remain high. Because subprime lending cases are already springing up across several Federal Circuits, and as the crisis in the credit markets continues to deepen and the market for subprime mortgages continues to suffer accordingly, more litigation is likely to follow.