Securities class-action awards jumped 46% in 2013

In contrast, median “estimated damages,” a key measure of investor losses, declined 48 percent from 2012. Since “estimated damages” are the most important factor in determining settlement amounts, this decline was likely a major factor contributing to the substantially lower median settlement amount of $6.5 million in 2013, the report states.

The report also notes that the landscape for securities class actions and their settlements may “shift dramatically” depending on the outcome of Halliburton Co. v. Erica P. John Fund, a case pending in the U.S. Supreme Court that could make it much more difficult for shareholders to band together and sue companies for fraud.

“If the ruling in Halliburton severely limits investors’ ability to get large-scale class actions certified, the future of such cases is up in the air,” added Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “This past year’s data also represent the fading echoes of the financial crisis, as some of the largest settlements resolve claims of fraud surrounding transactions in mortgage-backed securities. These lawsuits won’t be around in the coming years to drive aggregate settlement values.”

Other highlights from the report include:

• Total settlement dollars in 2013 were 60 percent above the average for the prior five years;
• The proportion of settled cases in 2013 involving accounting allegations dipped to a 10-year low, but the settlement as a percentage of “estimated damages” for these cases was much higher than for cases not involving such allegations;
• The median settlement in 2013 for cases with a public pension as a lead plaintiff was $23 million, compared with $3 million for cases without a public pension as a lead plaintiff;
• Cases reaching more advanced stages of litigation were associated with median “estimated damages” of more than three and a half times the median for cases settling in an early stage;
• Settlements of $50 million or lower were far less likely to involve accompanying SEC actions or public pensions as lead plaintiffs; and
• In 2013, 32 percent of settlements less than $10 million were for cases involving Chinese reverse mergers.