2008 Trends in Securities Class Actions: Annual Filings Are at the Highest Level in Six Years, Driven by the Credit Crisis, While Median Settlement Values Stay Steady

Thu Dec 18 20:24:38 UTC 2008
By Dr. Stephanie Plancich and Svetlana Starykh

The ongoing credit crisis and turmoil in the financial sector have fueled a major surge in securities class action litigation in 2008, 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, the study draws from more than 15 years of NERA research on case filings and settlements in shareholder class actions, and includes data through 14 December 2008.

The latest edition projects that there will be 267 federal filings by year's end, which would represent a 37% increase over 2007 and the largest annual total since 2002. Excluding atypical cases (related to the IPO securities litigation, analyst cases, and mutual fund market timing), filings in 2008 are on pace to reach a 10-year high.

The credit crisis is the most significant factor contributing to the increase, continuing a trend that began in 2007. Of the 255 cases filed as of 14 December 2008, 43% or 110 are related to the credit crisis, nearly tripling from 40 in 2007.

The authors report that, while filings have steadily increased from 2006 through 2008, median settlement values have remained relatively stable. The 2008 median settlement resolved for $7.5 million, below the 2007 median of $9.4 million, and above the 2006 median settlement of $7.0 million.

Although it is too early to tell what impact the surge in credit crisis filings may have on future settlement values, the authors note that there are two intriguing hypothetical outcomes: average and median settlement sizes could grow in the future as credit crisis cases begin to be resolved, or the financial distress faced by defendant companies could pull median settlement values down.