For a period beginning in 2006, plaintiffs’ lawyers filed a wave of options backdating securities class action lawsuits. Almost all of these cases have now been resolved, although one case continues to grind through the appellate courts. Now that the cases are largely resolved, it may be time to calculate the final tally. In the accompanying guest post, Adam Savett, Director, Class Action Services at KCC, surveys the cases, their dismissal rates and their settlements. His guest post concludes with a link to his presentation on the options backdating-related securities litigation.
I would like to thank Adam for his willingness to publish his guest post on my site. I welcome guest posts and articles from responsible commentators on topics of interest to readers of this blog. If you are interested in publishing a guest post, please send me a note by e-mail. Here is Adam’s guest post:
Starting in 2006, and continuing for more than a year, a series of academic reports and articles in the Wall Street Journal suggested that a number of publicly traded companies had improperly retroactively dated the grant and exercise price of stock options issued to corporate officers to a time preceding a rally in the price of the underlying shares. The revelation of this practice, commonly called options backdating, led to much litigation. A substantial portion of that litigation took the form of securities class actions, typically filed against a publicly traded company (the issuer) and certain officers and directors of the issuer.
The first such securities class action was filed on May 19, 2005 against Brocade Communications.
Ultimately 39 federal securities class actions were brought which contained allegations that directors or officers had engaged in or allowed stock options backdating to occur.
Of those 39 cases, 31 ultimately settled and 8 were dismissed.
Some early prognosticators suggested that the entirety of the cases had little if any merit, and might ultimately collectively be settled for less than $1 billion. Though we appreciate any and all help from our prognosticators, most were significantly off in predicting outcomes in this group of cases.
The settlements were not insubstantial, having a combined value of more than $2.38 Billion, though a sizeable portion of that is from UnitedHealth Group’s $925.5 million settlement. The average of all of those settlements is approximately $77 million, while the median of the settlements is $18 million.
The dismissal ratio was also somewhat out of line with historical trends, with 82% settling, while historically only approximately 65% of securities class actions settle.
Now, nearly eight years later, the story is almost complete.
We have to say almost, as the plaintiffs in the Apollo Group litigation have appealed the dismissal of their complaint to the Ninth Circuit Court of Appeals.
Now, they are not the only plaintiffs to appeal, as plaintiffs in three of the other dismissed cases also appealed their dismissal orders. In the Cyberonics, Jabil Circuit, and Witness Systems, the plaintiffs all unsuccessfully sought reversal of the dismissal of their complaints. The dismissals in the Jabil & Witness Systems cases were affirmed by the Eleventh Circuit while the Cyberonics dismissal was affirmed by the Fifth Circuit.
While students of securities litigation know that each case is unique, and the Apollo Group case is pending before the Ninth Circuit, the decision to launch a fourth appeal after three defeats suggests a certain tenacity on the part of that law firm.
The opening brief was filed by the Plaintiffs on December 10, 2013 and the defendants answering brief is due to be filed in early January of next year. Oral argument has not yet been scheduled in the Apollo Group appeal for.
After the Ninth Circuit renders a decision, we will update our analysis to reflect the outcome. Our current analysis of these cases can be found here.