Thursday, March 28, 2019

Cornerstone Research analyzes a 2018 $5B securities settlement award spike

By Jay Fishman, J.D.

Cornerstone Research, a U.S. consulting firm that publishes findings on complex litigation and regulatory proceedings, determined that the total monetary value of securities class actions approved in 2018 rose sharply to $5 billion even though the actual number of settlements approved was lower than the number approved in 2017. Cornerstone identified the reason for the spike: courts awarded five settlements each a mega $100 million.

Factors comprising the settlement spike. Cornerstone acknowledged its puzzlement over the $5 billion settlement amount awarded in 2018 over the previous year since the typical cases resulting in large settlement amounts—those involving accounting allegations or public pension lead plaintiffs—actually decreased in 2018. Cornerstone, therefore, sought to identify the factors that might have contributed to the increase and, from extensive research, uncovered the following:
  • More than 14 percent of the 2018 settled cases involved an accompanying criminal action—the highest proportion over the last 10 years. Cornerstone indicated that cases associated with a criminal action generally settle for higher amounts.
  • Defendant firms that settled cases in 2018 were 50 percent larger than those firms settling cases in 2017 and over 20 percent larger than over the prior five years, and the proportion of settlements involving delisted and bankrupt firms was the lowest over the last decade. Cornerstone concluded from these findings that economic factors played an important role in the settlement amount increase.
  • A large percentage of cases from 2018 involved either a derivative action, an SEC action, or an institutional investor, all of which contributed to a larger settlement amount.
  • A higher percent of cases that settled in 2018 took more than two years to be resolved, which often results in substantially higher settlement amounts.