The total number of securities class action lawsuit settlements reached the highest level in 15 years in 2022, and median, average, and aggregate settlement amounts also rose significantly in 2022 compared to the year prior, according a recently published annual report from Cornerstone Research. The report, entitled “Securities Class Action Settlements: 2022 Review and Analysis,” analyzes the 105 securities class action lawsuit settlements finalized in 2022 and compares them statistically with prior years’ settlements. The report can be found here. Cornerstone Research’s March 8, 2023, press release about the report can be found here.
According to the report, there were 105 securities class action lawsuit settlements in 2022 representing in the aggregate $3.8 billion in settlement value. By way of comparison, there were 87 securities suit settlements in 2021 with a total value of $1.9 billion. The 2022 total settlement value of $3.8 billion represents an increase of 97% over the 2021 total settlement value. The total of 105 settlements in 2022 represents an increase of 20% over the number of settlements in 2021.
The number of 2022 settled cases was also the highest annual number of securities suit settlements since 2007. The report suggests that the increase in the number of settlements in 2022 reflects the correspondingly higher number of securities suit filings during the period 2018-2020 – over 70% of the securities suits settled in 2022 were filed during this period.
The average settlement value of the 2022 securities suit settlements was $36.2 million, which was 63% greater than the 2021 average settlement amount of $22.2 million. However, the 2022 average of $36.2 million was below the five-year 2017-2021 average settlement amount of $42.3 million
The median settlement value of the 2022 securities suit settlements was $13.0 million, representing a 46% increase over the 2021 median settlement amount of $8.9 million. The 2022 median of $13.0 million was above the five-year 2017-2021 median settlement amount of $10.2 million. The 2022 median settlement amount is highest annual median since 2018.
The increased median settlement amount in 2022 was “likely driven” by “the record-high level” of what the report calls “simplified tiered damages,” which is a measure the authors use to estimate potential shareholder losses. The high simplified tiered damages are in turn a reflection of several factors, including larger issuer defendants and larger “disclosure dollar losses” (that is, the measure of the change in a company’s market cap following a class-ending corrective disclosure). The 2022 settled cases also involved increased numbers of institutional investor lead plaintiffs compared to 2021 and compared to the 2017-2021 five-year average. Overall, the 2022 settled cases took longer to resolve and reached more advanced stages.
Another factor affecting the 2022 settlement totals and average settlement amount is the number of mega settlements during the year (that is, settlements with a value of $100 million or greater. There were eight mega settlements during the year – the highest annual number of mega settlements since 2016. Interestingly, there were also fewer very small settlements as well. Only 23% of the 2022 settled cases settled for less than $5 million, compared to 33% of cases settled in the prior nine years.
Interestingly, and by comparison to the annual highs in 2022 for various settlement metrics, the 2022 settlements measured as a percentage of potential shareholder losses actually declined compared to 2021. Indeed, both the median and average settlement measured as a percentage of “simplified tiered damages” fell in 2022 “to their lowest levels among post-Reform Act years.” The authors suggest that the low measure of settlements as a percentage of simplified tiered damages may be related to the relatively low levels among the 2022 settled cases of factors often associated with higher settlement amounts, including SEC actions criminal charges, and allegations of accounting irregularities.
In looking ahead, the authors note that given the reduced numbers of securities class action lawsuit filings during 2021 and 2022, settlement activity may slowdown or flatten out in the upcoming years, absent an increase in the dismissal rate. In addition, given the more active SEC enforcement approach under the current administration, the number of settled cases involving parallel SEC actions may increase, reversing a recent trend toward fewer settlements involving parallel actions. Finally, given the increase in the numbers of filings in 2021 and 2022 involving COVID-19, SPACs and cryptocurrencies, “we expect increased settlement activity for these cases in the future.”
Although I have summarized the report’s findings and analysis above, the report is quite detailed, it merits reading at length and in full. There is quite a lot of information packed into the report.