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B/D Briefing: Calm Before the Storm?

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A new report found that the average securities class action settlement was halved in 2008, but the authors of Securities Class Action Settlements: 2008 Review and Analysis, caution that the reported decrease doesn’t constitute a trend. Instead, said Cornerstone Research in the report, the current crisis “will likely impact securities class action litigation and settlements” in 2009 “as cases begin to be resolved and settlement values jump.”

In fact, the report drily notes that “novel public policy questions” could arise from the crisis. That is so, says Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse and former SEC Commissioner, because some taxpayer money in the form of TARP payments may be used to fund the settlements. Grundfest wrote in the report that the use of taxpayer dollars “could set off a debate about whether taxpayers should pay for these settlements, and about the effectiveness of the class action litigation mechanism altogether.”

Cornerstone is a cosponsor of the Class ActionClearinghouse.

In 2008, the average class action settlement fell 50.2%, to $31.2 million, down from $62.7 million in 2007, according to the report. The length of the settlement period in 2008 reached a new high of over 800 days, nearly a year longer than the average for all prior settlements through 2007, which was 518 days. In addition, the percentage of cases involving estimated damages in excess of $1 billion fell to 20%, the lowest rate in five years.

The total number of settlements declined 10% in 2008, from 110 in 2007 to 99 last year, but Cornerstone again believes that number is likely to rise within the next year or two.”


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