Findings and additional comments from the authors of NERA’s “2008 Trends in Securities Class Actions” report

Yesterday, NERA Economic Consulting released its 2008 Trends in Securities Class Actions, a report that is based on more than 15 years of NERA research on case filings and settlements in shareholder class actions. The report includes data through December 14, 2008 for case filings and through December 31, 2008 for settlements.  The NERA report contains several interesting findings:

• A projected 267 federal filings in 2008, which would represent a 37% increase over 2007 and the largest annual total since 2002 (and a 10-year high excluding atypical cases).
• 110 cases filed in 2008 had some tie to the credit crisis, up from 40 in 2007. Of the 110 cases related to the credit crisis, 20 were cases related to failures in the auction-rate securities market, and most of these cases were filed in the first half of the year.
• Almost 50% of the 2008 cases were filed against defendants in the financial sector, up from about 16% of cases in the 2005-2006 period.
• Median settlements have remained relatively stable, at $7.5 million, which is slightly below the 2007 median of $9.4 million, and above the 2006 median settlement of $7.0 million.
• The average settlement amount in 2008 was $38 million.
• Of the 235 cases filed in 2000, 59% have reached final settlement, 1% have reached a partial settlement, 33% have been dismissed, 7% are still pending or have been abandoned by the plaintiffs, and a microscopic fraction actually went to trial (four of the 235).

Stephanie Plancich

Securities Docket reached out to the primary authors of the study, NERA’s Dr. Stephanie Plancich and Svetlana Starykh, to get some additional details on the study.  Our exchange is below.

Securities Docket: What do you think is the most significant finding in the report and why?

NERA: If we were forced to chose one most significant finding, it would be the spike in filings in 2008, driven by the credit crisis. As we note in the paper: “if we exclude the unusual cases — those that are related to the IPO securities litigation, analyst cases, and mutual fund market timing cases (i.e., the “Other Cases” in Figure 1) — filings in 2008 are at a 10-year high.”

Note that our prediction of 267 cases through the end of the year may even end up being too low. Between Monday and Wednesday of this week (after the cut-of date for our filing data of December 14), there were a number of new cases filed against American Capital Ltd., Credit-Based Asset Servicing and Securitization LLC, Integral Systems, Inc. and Bernard L. Madoff Investment Securities LLC.

Securities Docket: What, if anything, was surprising to you?

Svetlana Starykh

NERA: It was surprising to us that despite the worsening economic conditions and escalation of the credit crisis, settlement activity in the second half of the year was higher than the first half. For example, the 2008 average settlement value increased from $10 million over the January – June period to $ 29 million using full-year 2008 data. (Note that these averages exclude outlier settlements over $1 billion. See http://www.nera.com/image/BRO_Recent_Trends_8.5x11_0808.pdf for comparison).  The median settlement was also higher in the second half of the year: the median settlement from January – June 2008 was $6.2 million, but the full-year 2008 median is $7.5 million.

Securities Docket: Where do you see things trending in 2009?

NERA: While our paper does not forecast trends into the next year, our best guess is that filing activity will remain high into 2009.  As mentioned above, there have been a number of new filings in late December — traditionally a slow time for litigation activity — indicating that the rate of filings has yet to decrease.

And while the first credit crisis cases were concentrated in the financial industry, there has been an emerging trend of credit crisis- and recession-related filings emerge outside of the financial sector.

Read NERA’s 2008 Trends in Securities Class Actions