Risk & Compliance

Class-Action Settlements Reach Five-Year High

The large number of settlements in 2015 reflected the fact that 189 new securities class actions were filed, the most since 2008.
Matthew HellerMarch 29, 2016
Class-Action Settlements Reach Five-Year High

Securities class-action settlements surged in 2015 to their highest level in five years, while the total value of settlements rose substantially over 2014’s historic low, according to a new report.

The number of settlements totaled 85, representing a 27% increase over 2014 and the highest number since 2010, according to the report by Cornerstone Research. The increase reflected in part three consecutive year-over-year increases in the number of case filings.

Plaintiffs filed 189 new securities class actions in 2015 — the most since 2008 and an 11% increase from 2014.

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“The increases in case filings may suggest that higher numbers of settlements will persist in the near future,” Laura Simmons, a senior advisor at Cornerstone Research and a co-author of the report, said in a news release.

Total settlement dollars rose to $3 billion, an increase of 184% over the historic low in 2014 and 9% higher than the average for the past five years. The average settlement rose 123% to $37.9 million in 2015, while the median settlement remained relatively flat at $6.1 million.

There were eight mega settlements ($100 million or greater) in 2015, compared to only one in 2014.

“When the number of mega filings is up, you can expect an increase in mega settlements three or more years down the road, with the larger settlements taking longer to reach, and that’s the process that seems to be at work in the 2015 settlement data,” said Joseph Grundfest, director of Stanford Law School’s Securities Class Action Clearinghouse.

At the other end of the spectrum, the proportion of cases settling for $2 million or less was the highest since 1997, at 26%. Of those settlements, 29% were Chinese reverse-merger cases, which historically have settled for relatively small amounts.

Average “estimated damages,” or potential shareholder losses, alleged by plaintiffs increased 151% to more than $4.3 billion, but only 23% of settlements involved estimated damages of $1 billion or more.

“This suggests that a small number of cases with very large ‘estimated damages’ contributed to the relatively high average ‘estimated damages’ in 2015,” the report says.

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