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Mar 16

Class action settlements at decade low

Posted by Stephen Taub in Stanford Law SchoolsettlementSecurities Class Action ClearinghousePrivate Securities Litigation Reform Actecurities class action settlementsCornerstone Researchcompliance

Stephen Taub

It looks like investors have become a lot less litigious.

According to Cornerstone Research, the number of securities class action settlements approved in 2010 was the lowest in more than 10 years.

There were just 86 court-approved securities class action settlements in 2010, down 15 percent from 2009. The total dollar value of settlements declined by more than 17 percent, from $3.8 billion in 2009 to $3.1 billion in 2010.

As a result, the average settlement amount decreased slightly from $37.2 million reported in 2009 to $36.3 million in 2010 and remains substantially below the average of $54.8 million for all settlements since passage of the Private Securities Litigation Reform Act (Reform Act) in 1995.

Cornerstone says the decline in the 2010 average settlement is due to a decline in very large settlements. For the third consecutive year, no single securities class action settlement exceeded $1 billion, and the average of the top five "mega-settlements" in 2010--settlements in excess of $100 million--declined more than 30 percent from the average for 2009 mega-settlements.

Professor Joseph Grundfest, Director of the Securities Class Action Clearinghouse in cooperation with Cornerstone Research, said mega-settlements in 2010 were smaller.

On the other hand, the median settlement amount for cases settled in 2010 surged by more than 40 percent, to $11.3 million from $8 million in 2009. This is the largest percentage increase in the median settlement amount in the last 10 years and is the first time during that same period that the median settlement amount, even when adjusted for inflation, exceeded $10 million.

In addition median estimated "plaintiff-style" damages for 2010 settlements reached $547 million, the highest level observed since passage of the PSLRA.

Cornerstone says the huge gap between the averages and medians reflects the presence of a few significant larger settlements. It points out that since the Reform Act era, more than half of the securities class actions have settled for less than $10 million and about 80 percent have settled for under $25 million. Just 7 percent of cases have settled for more than $100 million.

 "I don't expect the sharp drop in the number of settlements to reoccur in the near future," says Professor Laura Simmons of the College of William & Mary Mason School of Business and Senior Advisor at Cornerstone Research. "However, the broad-based shift toward higher settlement amounts may persist in upcoming years."

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