NERA, a global consulting firm of economic experts who study, report, strategize, and provide recommendations on economic and financial issues, has been analyzing trends in securities class action lawsuits for almost three decades. The New York-based firm issued its 25th annual report on securities class action litigation, where they found a decrease in settlement money amongst higher levels of lawsuits.
NERA’s “Recent Trends in Securities Class Action Litigation: 2017 Full-Year Review” found that the settlement value of U.S. class action lawsuits making accusations of fraud and other securities law violations has tremendously declined. On the other hand, the number of the lawsuits being filed has skyrocketed to over one per day in the U.S.
Previous 2016 data showed 300 shareholder lawsuits involving accusations against a company for concealing negative news or making misleading or false statements. This number rose 44% in 2017, which is the highest it’s been since the 1995 Private Securities Litigation Reform Act took affect to curb frivolous lawsuits. Almost 200 of the lawsuits were in regard to objectionable mergers, which was double the number from last year.
The number of pending federal cases in 2017 was up 41% from 2011 and 12% from 2016. However, case resolution was also record-breaking, with a 40% dismissal rate and 30% settlement rate.
Settlements not related to merger cases rose from 113 the year before to 148 this year. However, the average settlement was under $25 million a piece. Last year the number of dismissals was 146. This year it’s a record 205.
Brian Lutz, of Gibson, Dunn & Crutcher, told Reuters that the increase may be due to what he calls “smaller cases” that are lacking in quality. Many of these lawsuits lack sufficient evidence and are either settled for pennies on the dollar or dismissed entirely.
There were 195 traditional securities class actions in 2016, 44 of which were companies outside the U.S. This year that number was 216, with 55 being non-U.S. companies. NERA points out that these lawsuits often followed regulatory probes or weak financial showings.
Attorney fees and expenses for plaintiffs in such lawsuits dropped almost 70% to $467 million, which was a number not seen so low since 2004.
The largest settlement ever remains the 2006 Enron Corp collapse settlement of $7.2 billion. The largest settlement last year was $210 million over Salix Pharmaceuticals misrepresenting inventory levels. NERA noted that 2017 was the first in almost twenty years that didn’t have a settlement of $250 million or more.