New Study Shows Number of Securities Class Action Settlements Decreased in 2010, While The Median Settlement Amount Increased
On March 10, 2011, Cornerstone Research announced the results of its latest study: "Securities Class Action Settlements – 2010 Review and Analysis." The Annual Report, which provides detail on settlement summary statistics and an analysis of case characteristics, reviewed the 86 court-approved settlements in 2010, finding that the number of settlements fell to its lowest in ten years and that the total dollar value of settlements fell 17%. However, the median settlement amount increased over 40% in 2010.
One of the co-authors of the report, Professor Laura Simmons of the College of William & Mary, stated in the Press Release: "I don’t expect the sharp drop in the number of settlements to reoccur in the near future; however, the broad-based shift toward higher settlement amounts may persist in upcoming years."
Additional findings announced by Cornerstone include:
• settled cases where there was a corresponding SEC action prior to the class action settlement increased to 30% in 2010 (compared to 20% in 2009), and those cases tend to result in higher settlement amounts;
• the number of class actions involving companion derivative actions fell slightly in 2010 when compared to 2009, but still remain higher than the average number of cases since the passage of the Private Securities Litigation Reform Act; and
• approximately 70% of the settlements announced in 2010 were related to violations of generally accepted accounting principals (a 5% increase over 2009) and those cases "continued to be resolved with statistically significant larger settlement amounts" than cases that did not involve GAAP violations or accounting issues.
Cornerstone's Press Release regarding the study is available here. The Study itself is available here.
This sudden and quite large drop in cases is very surprising to me. I am guessing that it mainly has to do with the economy?
The authors of the Report state that you may be right: "it is possible that the challenging economic environment that continued through 2010 contributed to the lower number of settlements approved during the year."
However, Report asserts that "the more likely cause for this decline is a combination of the substantial drop in the number of cases filed during 2006 … and the fact that to date, credit-crisis cases have generally taken longer to settle."
For example, Cornerstone states that "Credit-crisis-related cases generally were filed between 2007 and 2009 and have settled at a slower rate than traditional cases," and that, over all, "the average length of time from case filing to settlement approval increased to 4.1 years for cases settled in 2010 compared to 3.9 years for cases settled in 2009."