As reported in a prior post (here), on January 16, 2008, a civil jury returned a verdict in favor of the plaintiffs in the securities class action lawsuit pending against Apollo Group and its former CEO and CFO. In a January 24, 2008 statement (here), the company provided "clarification of certain matters in regard to the verdict."

1. Damages: "The actual amount of damages payable cannot be determined until notices are published and shareholders present valid claims….Based on the plaintiffs’ estimate, the damages could range between $166.5 million and $277.5 million. The Company…intends to record its best estimate of the potential loss, including future legal and other costs, in the second quarter of fiscal 2008."
2. Liability: "Liability in the case is joint and several, which means that each defendant, including the Company, is liable for the entire amount of the judgment." Apollo Group will be responsible for posting the appeal bond.

3. Insurance: "The Company does not expect to receive material amounts of insurance proceeds from its insurers to satisfy any amounts ultimately payable to the plaintiff class."

4. Defense Costs: Defense costs including legal fees total approximately $25 million. Although the company expects the insurers to make payments for defense costs, "the insurers have not waived their rights to object to coverage."

5. Company Credit: "If the judgment is not stayed or discharged within 60 days, it will constitute an event of default under the credit facility." The company "expects to cause the judgment to be stayed by filing any necessary bond in a timely manner."

While the company obviously intended this statement for other purposes, the statement is also a very powerful testament to why so few securities lawsuits go to trial. There is not just the trial risk of a significant adverse judgment (although this is obviously compelling in an of itself, particularly in light of the magnitude of the Apollo verdict.) There are other considerations, too: an adverse trial outcome creates accounting, reporting and disclosure issues; it potentially undermines the availability of insurance, perhaps even for defense expense; and it creates complications with creditors. All of these reasons are, of course, on top of the burden, distraction and expense a trial entails.

There may be other securities lawsuits that go to trial in the future, but I doubt that many defendants would voluntarily go to trial after reading considering the jury verdict in the Apollo Group case and reading the company’s January 24 "clarification."