RiskMetrics has issued its year-end 2009 scorecard of the Top 100 securities class action lawsuit settlements. The list, which is updated quarterly, can be accessed on the Securities Litigation Watch blog (here). The details in this very interesting tabulation support a number of interesting observations, discussed below.
The year-end Top 100 tally reflects the incorporation of 15 new settlements added to the list during 2009. However, because RiskMetrics identifies a specific case’s Settlement Year as "the year in which the hearing to grant final approval of the settlement or most recent partial settlement occurred," there were several high-profile settlements entered late in 2009 that are not, because they are not yet final, reflected in the most recent update, including the $225 million Comverse Technology settlement (about which refer here) and the $160.5 million Broadcom settlement (here).
The settlements added to the list during 2009 include the tenth largest all-time settlement, in the form of the $925 million UnitedHealth Group settlement (refer here and here). Among the all-time top 25 settlements are several other settlements added to the list in 2009, including the $586 million IPO Securities Litigation settlement (refer here), the $554 million HealthSouth settlement (refer here), the $475 Merrill Lynch settlement (refer here), the $445 million Qwest Communications settlement (refer here), and the $400 million Marsh & McLennan settlement (here).
The price of admission to the Top 100 list is steep. Taking into account the late-year Comverse Technology and Broadcom settlements, which presumably will be added to the list during 2010, future settlements will have to excess $80 million to crack the Top 100. And to break into the top 25, a settlement will have to exceed $400 million. (It should not be overlooked that there have been 25 settlements of $400 million or greater, which is a staggering fact all by itself.)
The Securities Litigation Watch blog also notes that the price of admission to the Top 100 list has doubled since the end of 2005; at year-end 2005, the 100th largest settlement on the list was in the amount of $39 million. By year-end 2009, the 100th largest settlement was $79.75 million.
Settlements related to options backdating securities cases are well-represented among the Top 100 settlements, including number 10 all-time, the UnitedHealth Group options backdating securities lawsuit settlement. Other Top 100 options backdating settlements include Brocade Communications Systems ($160 million) and Mercury Interactive ($117.5 million). The yet to be added Comverse Technology ($225 mm) and Broadcom settlements ($160.5 mm) also rank among the top all-time settlements. The separate $118 million Broadcom options backdating-related derivative lawsuit settlement, though not relevant to this list because it did not arise in a securities class action suit, is nevertheless noteworthy in this connection.
The Top 100 settlements also include two subprime-related securities class action settlements, the $475 million Merrill Lynch settlement and the $150 million Merrill Lynch bondholder settlement. Call it a hunch, but I am guessing that before all is said and done with the subprime and credit crisis-related securities lawsuits, there will be a lot more of those cases on the Top 100 settlements list.
The Top 100 settlements involve cases in 38 different federal district courts, with the largest number in the Southern District of New York (25). Other districts with significant numbers of settlements include the District of New Jersey (8), the Northern District of California (7), the Central District of California (6), and the Southern District of Texas (5).
Among the plaintiffs’ firms, the law firm with the highest number of Top 100 securities class action settlements is the Milberg firm (in its various manifestations), with 29, followed by the Bernstein Litowitz firm, with 26 and the Coughlin Stoia firm, in its various forms, with 14.
Of the Top 100 securities class action settlements, over two-thirds (68) were finalized in the most recent five year period between 2005 and 2009. The bar graph on page 5 of the report, which depicts the definite upward trend in the more recent years, strongly communicates the increasing severity of securities class action claims.
The inevitable implication of this inexorably increasing claims severity is that the price of poker is going up. This fact, taken together with the dramatic increases in the costs associated with defending securities suits, has important implications for D&O insurance limits selection. Simply put, commonplace notions about limits adequacy that have developed over time may have gone completely out of date in the most recent years.
The significant recent increase in the number of mega settlements suggests that the answer to the question "How much insurance is enough" may be categorically greater than even a short time ago. The inevitable ratchet effect from these settlement trends, creating ever greater measures of what "cases like this settle for," also suggests that these numbers will not be going back down either.