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Mar 26
2010

Securities class action settlements surged in 2009, down from high

Posted by Stephen Taub in WorldcomsettlementlawsuitsIPOEnron

Stephen Taub

The number and value of securities class action settlements rose last year. However, the figures are still way down from what they were several years ago.

According to Cornerstone Research, which keeps score and cosponsors the Stanford Law School Securities Class Action Clearinghouse, in 2009 there were 103 court-approved securities class action settlements, up slightly from 97 in 2008. However, the settlements in 2009 involved $3.8 bil­lion in total settlement funds, up 35 percent from the prior year.

Cornerstone says the big jump in settlement funds is partly due to a $925.5 million settlement that occurred in 2009, while the largest single settlement in 2008 was $750 million.

The research firm stresses the 2009 total settlement value was consistent with historical annual averages for case settlements filed since the Private Securities Litigation Reform Act was passed in late 1995-excluding the unusually high levels of settle­ment values that occurred in 2005 through 2007.

The peak year was 2006, when total settlement value exceeded $18 billion, up from $10 billion the prior year (adjusted for inflation). In 2007, the total value "fell" to $7.4 billion.

Keep in mind that 2006's figure included around $7 billion or so related to a partial settlement of the Enron litigation while 2005's total included around $6.5 billion from the WorldCom settlement fund.

The median settlement amount for cases settled in 2009 remained unchanged from 2008 at $8 million. This is lower than the $9.3 million median settlement reached in 2007. However, it represents a slight increase over the median of $7.4 million for all cases settled in prior years.

The average settlement in 2009 worked out to $37.2 million, up from $28.4 million in 2008. However, this was still well below the average of $55.4 million for settlements through 2008, according to the report.

In fact, for the second straight year, there were no mega-settlements for more than $1 billion. Keep in mind that eight of the past decade's nine settlements in excess of $1 billion occurred from 2005 through 2007.

At first glance, it is not surprising that the greatest number of cases settled in 2009 involved firms operating in the finance sector (19). However, only a few of those settlements of class actions were related to the credit crisis.

Rather, shareholder suits filed from 2003 through 2007 account for the settlements in the finance sector. A little surprising, more than 55 percent of the cases settled in 2009 were for issuers whose common stock traded on the New York Stock Exchange. Historically for cases settled through 2008, Big Board issuers accounted for just 30 percent of total finance sector settlements.

The next two popular industries for class action settlements were pharmaceuticals (16) and high-technology (15).

Keep in mind that one big settlement in 2009 involved the resolution of the consolidated Initial Public Offering Securities Litigation matter involving more than 300 issuer defen­dants and 55 underwriter defendants. The $586 million settlement occurred more than eight years from its initial filing. Cornerstone notes it ranks as the thirteenth largest post-Reform Act settlement.

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