Cornerstone Research’s latest annual report discloses that the number and average size of securities class-action settlements increased in 2015 as compared to 2014. Total settlement dollars rose to more than $3 billion – similar to the annual average for the prior five years, but a significant increase from 2014.
Cornerstone attributes the 2015 increase in settlements to three consecutive year-over-year increases in case filings. In addition, Cornerstone notes that more of those cases were larger cases, leading to eight “mega” settlements (of $100 million or more) in 2015.
Some highlights from Cornerstone’s press release include:
- Absolute Number of Settlements Increased: 80 securities class-action settlements were approved in 2015, up from 63 in 2014.
- Number of “Mega” Settlements Increased: Eight “mega” settlements were approved in 2015, while only one was approved in 2014. Six of the eight settled for between $100 million and $200 million, while one case settled for more than $970 million. The eight “mega” settlements represented only 10% of the 2015 settlements, but accounted for 73% of the total settlement dollars in 2015.
- Average “Estimated Damages” Increased: Average “estimated damages” climbed 151% from 2014.
- Average Settlement Amount Increased: The average settlement amount rose from $17 million in 2014 to $37.9 million in 2015, while the median settlement amount stayed relatively the same. The increased average settlement amount was likely affected by the higher number of “mega” settlements approved in 2015 as well as the higher average “estimated damages” amount.
- Proportion of Smaller Cases Increased: The proportion of cases settling for $2 million or less in 2015 was at the highest level since 1997. Some 29% of the under $2 million settlements involved Chinese reverse mergers, which historically have settled for relatively small amounts. Those “smaller” cases likely affected the number of cases settling within two years from filing date (16 cases in 2015).
- Nearly Half of All Settlements Were Under $50 Million: Despite the greater number of “mega” settlements, nearly 50% of the settlements approved in 2015 settled for less than $50 million, while 80% settled for less than $25 million.
- More Section 11 Cases May Be Coming: Five settlements in 2015 involving Section 11 and/or Section 12(a)(2) claims did not involve Rule 10b-5 allegations. Securities Act cases (and settlements) are likely to be more prevalent in the short term due to intensified activity in the U.S. IPO market and a greater number of case filings involving Section 11 claims.
- Lower Than Typical Settlements For Cases With Related SEC Proceedings: 20 of the 80 settlements in 2015 resolved cases that involved a related SEC proceeding. The median settlement for those cases was lower than for cases without an associated SEC proceeding – a change from prior patterns.