Adding its contribution to the previously released studies of NERA (here) and Cornerstone (here), PricewaterhouseCoopers recently released its annual report (here) regarding 2006 securities class action litigation. The PwC report is generally consistent with the other studies, but it does add a few interesting additional insights.
Perhaps most interesting observation in the PwC study relates to its comments about the overall level of shareholder litigation activity. The PwC study notes that while the number of securities class action lawsuit filings declined in 2006, the total number of shareholder lawsuits did not decline, when shareholder derivative lawsuits are taken into account. Accounting for the derivative suits, “a more stable level of shareholder activity begins to emerge in comparison to prior years.”
The PwC study reports that the total of 214 class actions and derivative claims in 2006 was “higher than the 172 cases analyzed in 2005 and not so different from the average of 218 total cases filed since 2002.” So rather than facing a decline, “the more relevant observation is the shift in venue and the type of action employed to address shareholders’ protestations.”
Other noteworthy observations:
Audit Committees: “A more startling statistic for 2006 is that audit committee members were named in 8 percent of federal cases filed, compared to 2 percent in 2005 and an average of 4 percent since 2002.”
Settlement Amounts: By contrast to the NERA and Cornerstone studies which reported a higher average class action settlement in 2006, the PwC study found that in 2006 “average settlements dropped from $62.3 million from $69.8 million, down by 11 percent.” This numerical divergence between the studies is most likely explained by the footnote on page 37 of the PwC study, where the report states that “settlement year is determined by the year the settlement is disclosed.” This approach contrasts to the other studies, which use the year that the settlement is approved (refer here). The PwC study also notes that the most frequent settlement amount fell between $2 million and $4.99 million.
Foreign Issuers: The PwC study notes that the number of securities class action lawsuits filed against foreign issuers fell from 19 in 2005 to 13 in 2006, which represents the lowest number filed against foreign issuers in the last seven years. The 13 foreign companies sued in 2006 represent only 1 percent of the total of 1,200 foreign issuers whose shares trade on U.S exchanges.
The study also contains a number of interesting essays and commentaries on a variety of subjects, including SEC enforcement trends, regulation of foreign issuers and of hedge funds, and evolving international extradition standards.