Due to the volume of smaller settlements and the absence of any jumbo settlements, the aggregate amount of securities class action lawsuit settlements declined “dramatically” in 2017 compared to the prior year, according to the latest securities suit settlement study from Cornerstone Research. According to the report, which is entitled “Securities Class Action Settlements: 2017 Review and Analysis,” in addition to the decline in the total value of settlements, average and median settlement values all also declined in 2017. The report can be found here. Cornerstone Research’s March 14, 2018 press release about the report can be found here.
According to the report, there were 81 securities class action lawsuit settlements approved in 2017, down slightly from the 85 settlements approved in 2016. The 81 settlement during 2017 is the second highest number of settlements since 2010.
The total value of the 81 settlements approved in 2017 was $1.5 billion, which represented a substantial drop in the total value of settlements in 2016 of $6.1 billion. The $1.5 billion in aggregate settlements during 2017 is the second lowest annual figure since 2008. The decline is attributable to the large number of settlements under $5 million and the absence of any settlements over $250 million. (This trend toward smaller settlements and away from jumbo settlements arguably has already been disrupted in 2018 with the massive $2.85 billion Petrobras settlement announced in early January 2018, as discussed here.)
As a result of the increased number of smaller settlements and the absence of larger settlements, the average settlement amount also declined in 2017. The average settlement in 2017 was $18.2 million, which represents an 80% decline from the $72 million average in 2016, and 70% below the 1996-2016 average of $57.7 million.
The median settlement value also declined in 2017. The median settlement in 2017 was $5.0 million, compared to $8.7 million in 2016 and $8.5 million for the period 1996-2016.
The increase in the number of smaller settlements is attributable to the number of smaller cases filed, as measured by Cornerstone Research’s own estimate of the plaintiff-style damages in the filed cases. Perhaps relatedly, the number of settlements involving institutional investor lead plaintiffs also declined; the proportion of settlements with a public pension fund lead plaintiff was at its lowest level in ten years in 2017. Interestingly, over half of the settlements involved parallel derivative cases, which is a bit unexpected, as in the past the presence of a parallel derivative suit has been a marker for larger securities suit settlements.
51% of all securities suit settlements in 2017 were below $5 million (compared to 33.6% of settlements during the period 1996-2016). Indeed, there were a significant number of securities suit settlements of $2 million or under – that is, settlements that the report notes have historically been described as “nuisance suits.” There were 15 securities suit settlements under $2 million in 2017, representing 18.5% of all settlements (compared to 11.8% of settlements during the period 1996-2016). 60 percent of these very small settlements during 2017 involved one of the so-called “emerging law firms” as lead plaintiff. (For a discussion of the emerging law firm phenomenon, please refer here.)
While there were a greater number of smaller settlements, there were fewer larger settlements. In 2017, there were only four settlements of $100 million or greater, amounting to 43 percent of total settlement dollars during the year. By contrast, during the period 2008–2016, 70 percent of total settlement dollars were attributable to settlements of over $100 million. Compared to the four settlements over $100 million in 2017, there were ten settlements over $100 million in 2016.
Not only were the settlements on the whole smaller in 2017, but the cases also tended to settle more quickly than in the past. 23 percent of the 2017 settlements involved cases settled in the first two years, compared to less than 16 percent during the period 2008-2016. The average time to settlement from filing during 2017 was at its lowest level in ten years. Interestingly, the median settlement involving cases taking more than two years was more than double the median for cases that settled within two years.
Looking ahead, the report notes that the high volume of case filings in the past year might suggest that the higher number of settlements should continue going forward as well. However, with the higher number of filings has come a higher number of dismissals; the higher number and rate of dismissal could offset the higher filing rate. The reduced involvement of institutional investors could also point toward lower overall settlement values.
Identify that New Jersey D&O Professional: Loyal reader Maurice Pesso of the White & Williams law firm took the picture below while he was traveling to the airport recently. He sent the picture to me, wondering if perhaps it was me in the car. Of course it isn’t me; I live in Ohio, not New Jersey. But there is a D&O professional in New Jersey to whom this license plate belongs. Since most of the D&O insurance industry reads this blog, I am wondering if anyone out there can identify the owner of these NJ plates. I hope to salute both the owner of the vehicle and plates as well as the person who provides the identification. Drop me a note if you know.