Securities Class Action Settlement Median Value Remains Historically High in 2019
Size of issuer defendant firms continues to increase.
Median securities class action settlement amounts remained at elevated levels in 2019, reflecting a rise in the overall percentage of mid-sized settlements and a decline in the number of smaller settlements, according to a report from Cornerstone Research.
The report, Securities Class Action Settlements—2019 Review and Analysis, found that the median settlement value was $11.5 million in 2019, on par with 2018 and 34% over the 2010–2018 median. There were 74 settlements in 2019, down slightly from 78 in 2018.
Settled pharmaceutical cases reached an all-time high in 2019, both in the number and percentage of cases.
Courts approved settlements totaling $2 billion in 2019, compared to $5.2 billion in 2018 (adjusted for inflation). The 2018 figure was driven largely by a single settlement of $3 billion. There were four mega settlements (those valued at $100 million or higher) in 2019, with the largest settlement at $389.6 million.
The report also analyzed “simplified tiered damages,” which provides a measure of potential shareholder losses. These remained at elevated levels in 2019, in part reflecting the relatively high market capitalization losses associated with cases filed from 2015 to 2018.
The size of issuer defendant firms (measured by total assets) grew 59% in 2019 and was more than double the prior 10-year median.
Laura E. Simmons, report coauthor and Cornerstone Research Senior Advisor: “Historically, larger cases have tended to involve public pension plans or other institutional investors as lead plaintiffs. One finding that is particularly striking is the decrease in public pension plan lead plaintiffs despite an increase in larger issuer firms with potentially sizable damages exposure.”
Joseph A. Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse: “The average size of publicly traded firms continues to grow. That phenomenon is fueled, at least in part, by a decrease in IPO activity and an increase in merger activity. This trend, combined with the heightened filing activity against public companies, may contribute to sustained levels of higher settlement amounts.”
Laarni T. Bulan, report coauthor and Cornerstone Research Principal: “Larger issuer defendants may also cause plaintiff firms to pursue potential claims more vigorously. One possible measure of the time and effort by plaintiff counsel is the number of docket entries per case. In 2019, average docket entries were the highest in the last 10 years, primarily driven by cases with relatively large damages.”
Record Number of Pharmaceutical Case Settlements
In recent years, there has been an increase in the number of securities cases filed against companies in the life sciences sector and, in particular, against those in the pharmaceutical industry. The report provides a spotlight on settlements in this industry sector. Settled pharmaceutical cases reached an all-time high in 2019, both in the number and percentage of cases. These settlements have a number of characteristics that differ from the overall sample, such as a reduced rate of accounting allegations as well as less frequent institutional lead plaintiff involvement.
- In 2019, 57% of cases settled for between $5 million and $25 million, while the number of small settlements (less than $5 million) declined to the lowest level in the past decade.
- The average settlement amount in 2019 was $27.4 million, 43% lower than the average over the prior nine years. If settlements exceeding $1 billion are excluded from the prior nine-year average, the decline in 2019 was 16%.
- Average “simplified tiered damages” increased for the third straight year, while median “simplified tiered damages” remained largely unchanged from 2018 to 2019.
- In 2019, 30% of settled cases involved a corresponding SEC action, the highest rate over the last 10 years.
- In 2019, 53% of settled cases involved an accompanying derivative action, the second- highest rate over the last 10 years.
- Companies that settled cases after a ruling on a motion to dismiss (MTD) were, on average, 50% larger (measured by total assets) than companies that settled while the MTD was pending.
- Among cases with Rule 10b-5 claims, the median class period length in 2019 was at its highest level in the past 10 years.
- In 2019, 90% of cases with only Section 11 and/or Section 12(a)(2) claims (’33 Act claims) involved an underwriter as a codefendant.
- Mediators continue to play a central role in the resolution of securities class action settlements. In 2019, nearly all cases in the dataset involved a mediator.
Read Cornerstone Research report Securities Class Action Settlements—2019 Review and Analysis.
Read more on settlement size in the Cornerstone Research Report: Securities Class Action Settlements--2019 Review and Analysis.