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NERA Year-End Update: Securities Class Action Filings Accelerate in Second Half of 2010; Median Settlement Value at an All-Time High
14 December 2010
New York -- The pace of US federal securities class action filings accelerated in the second half of the year and filings are on track to exceed last year's total, according to the Trends 2010 Year-End Update study released today by NERA Economic Consulting. Filings are projected to reach 239 cases by year’s end compared to the 220 class action cases filed in 2009.
Credit Crisis Filings Continue to Wane
Over the course of 2010, securities class actions stemming from the global credit crisis have continued to be filed at a slower rate than observed in 2008 and 2009. Through the end of November, there have been only 31 such cases filed in 2010 compared to 57 filed in 2009 and 103 in 2008.
While the pace of credit crisis filings has declined, these cases have been offset by a resurgence in a broad range of other types of filings, including undisclosed product and operational defects, breach of fiduciary duties, and accounting improprieties. Companies in the finance sector continue to be a target, though more than half of the 2010 filings against finance sector companies appear to be unrelated to the credit crisis.
Median Settlement Reaches an All-Time High
The median settlement value, an indicator of the size of a typical settlement, was $11.1 million in 2010. This value is one third higher than the 2009 settlement and the first time since the passage of PSLRA in 1995 that the median has exceeded $10 million.
Average settlements for securities class actions reached a new record in 2010. The average settlement was $109 million, well above the previous high of $80 million in 2006. Excluding outliers of cases over $1 billion and 309 small IPO laddering settlements, the average settlement for 2010 was $42 million-in line with last year’s record high.
Trends Author Commentary
"Of all filings in 2010 against foreign companies, over a third have been against Chinese-domiciled issuers," according to Dr. Jordan Milev, a co-author of the study. "Most of these suits were filed in the second half of this year and they often contain allegations of ineffective internal controls and misleading or false financial reports filed with the SEC."
"The size of the typical settlement reached an all-time high this year," said Robert Patton, a co-author of the study. "But this may begin to drop once the credit crisis cases make their way through the litigation pipeline."
Other Notable Findings of the Study
- Securities class action cases are being filed more quickly in 2010. The median time from the end of the class period to the filing of the cases plummeted to one month, compared to six months in the second half of 2009.
- Comparing 2010 filings to last year, the largest percentage increase was in filings against electronic technology and technology services companies.
- The percentage of class actions naming a financial institution as a primary defendant remained high in 2010, at 41% of total filings.
- The Ninth Circuit saw more securities class actions filings in 2010 than any other Circuit, with 26% more filings than the Second Circuit, which has traditionally commanded the lead.
- Out of the 230 credit crisis-related federal securities class actions filed between 2007-2010, just 8% have settled and over a quarter have been dismissed, leaving approximately two-thirds unresolved.
- Two securities class action jury trial verdicts were reached in 2010, against BankAtlantic Bancorp, Inc. and Vivendi, S.A.
Securities Class Action Trends Report Series
NERA has been analyzing trends in securities class actions for more than 15 years. Two reports are published per year: a mid-year study and an annual review published at year’s end. This year end study was authored by NERA Senior Consultants Dr. Jordan Milev, Robert Patton, and Svetlana Starykh and includes data on filings and dismissals through 30 November 2010, and settlements through 31 December 2010.
For more details, and to read the full report, visit www.nera.com/recenttrends.
About NERA
NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For more than six decades, we have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real-world industry experience to issues arising from competition, regulation, public policy, strategy, finance, and litigation.
NERA’s clients value our ability to apply and communicate state-of-the-art approaches clearly and convincingly, our commitment to deliver unbiased findings, and our reputation for quality and independence. Our clients rely on the integrity and skills of our unparalleled team of economists and other experts backed by the resources and reliability of one of the world’s largest economic consultancies. Continuing our legacy as the first international economic consultancy, NERA serves clients from major cities across North America, Europe, and Asia Pacific.