PricewaterhouseCoopers has released its annual review of securities class actions. The findings include:
(1) There were 163 filings in 2007, an increase of nearly 50% over the previous year. Subprime cases accounted for 37 of the filings.
(2) The number of filings associated with financial restatements was relatively small - 39 cases - suggesting that the "market reaction to restatements is declining."
(3) The number of filings with some form of SEC involvement (investigation or enforcement action) fell for the third year in a row to just 24 cases (approximately 15% of total).
(4) There was a sharp increase in the number of filings against foreign private issuers, with 27 cases in 2007 (compared to 14 cases in 2006).
Quote of note: "During hard times, the increased pressure to produce good financial results is more likely to lead to bad behavior, which in turn is likely to result in higher levels of shareholder litigation. If current speculation on the downward direction of the economy is to be believed, then private securities class actions will most likely trend upward over the next few years, above the recent average number of filings since Sarbanes-Oxley."
Cornerstone Research has released an updated report on post-PSLRA settlements of securities class actions through December 2007. The findings include:
(1) There were 111 settlements in 2007. The aggregate value of those settlements, excluding the enormous Tyco settlement, was $3.8 billion.
(2) The median settlement value was $9 million in 2007, the highest in the post-PSLRA period. The report attributes the increase, in part, to the fact that the percentage of cases settling for $10-20 million increased substantially from prior years (to approximately one-quarter of all settlements).
(3) The number of settled cases involving companion derivative actions is increasing. More than 55 percent of cases settled in 2007 were accompanied by the filing of a derivative action, compared with 45 percent in 2006 and 35 percent in 2005. Settlements for securities class actions accompanied by derivative cases are significantly higher than for cases not involving them.
The press release announcing the report can be found here.
Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a report on federal securities class action filings in 2007. The findings include:
(1) There were 166 filings in 2007 (as of 12/17/07). Note that there is a significant difference between the Cornerstone (166) and NERA (198) totals over the same time period. Both numbers, however, represent a large increase over the number of filings in 2006.
(2) The report is skeptical that the increase in filings suggests a trend back to historical filing levels, noting that 32 of the filings were related to the subprime crisis. Increased stock market volatility in the second half of 2007 also may have played a role in the increase.
(3) Because of subprime-related litigation, filing activity in the financial sector nearly quadrupled to 47 filings (as compared to 11 filings in 2006).
(4) The report examines the outcome of post-PSLRA cases in Cornerstone's database (2,646 cases). The report finds that of the resolved cases, 41 percent were dismissed and 59 percent settled.
The press release announcing the issuance of the report can be found here. The D&O Diary has an interesting post breaking down the 2007 statistics and challenging some of the report's conclusions.
Quote of note (press release): "Professor Grundfest commented that 'the JDS trial is an important landmark in modern securities litigation. These cases rarely go to trial, and for the defendants to win a total victory in a case that claimed $20 billion in damages demonstrates that not every case that makes it past summary judgment has merit. The interesting question is how and whether this trial result might cause plaintiffs to modulate their settlement demands or embolden defendants to take cases to trial.'"
It is not the end of the year, but that has not stopped NERA Economic Consulting from releasing its annual study on securities class actions. The 2007 report is entitled "Recent Trends In Shareholder Class Action Litigation: Filings Return to 2005 Levels as Subprime Cases Take Off; Average Settlements Hit New High."
The study reaches the following notable conclusions:
(1) NERA predicts that there will be 207 filings by year end (a 58% increase as compared to 2006). The increase in filings has been driven in part by subprime-related litigation (38 filings as of Dec. 15).
(2) The value of the average settlement finalized or proposed to be finalized in 2007 (excluding mega-settlements greater than $1 billion) was $33.2 million, a jump up from $22.7 million in 2006.
(3) The post-PSLRA dismissal rates for securities class actions can be difficult to accurately calculate given the long-term nature of these cases, the ability to replead, appeals, etc. Interestingly, the study examines the current status of the 235 securities class actions filed in 2000 and finds that over 90% of these have reached some kind of final resolution. To date, approximately 60% of the cases have reached final settlement and 31.5% of the cases have been dismissed.
NERA Economic Consulting has released a study entitled "Recent Trends In Shareholder Class Action Litigation: Filings Stay Low and Average Settlements Stay High - But Are Those Trends Reversing?" The study reaches the following notable conclusions:
(1) The number of filings have increased, with 76 new filings through the first half of 2007. The projected annual total of 152 would be a 12% increase over last year.
(2) The average settlement value during the first half of 2007 (excluding settlements over $1 billion) hit a new high of $30 million. There is evidence, however, that this trend may reverse direction based on a decline: (i) in the investor losses associated with recent filings; and (ii) in the prevalence of accounting allegations in recent filings.
(3) Eight of the top ten settlements of all time have resolved in 2006 or 2007, or are pending. Tyco's announced preliminary settlement of $2.975 billion would be the largest amount ever paid by a single settling defendant.
Securities Litigation Watch has posted the SCAS 50, which "lists the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2006 in which the law firm served as lead or co-lead counsel." At the head of the list this year is Lerach Coughlin. The full list, along with links to reports from previous years, can be found here.
The race to release annual data on securities class action filings has heated up to the point where the two major players both have decided not to wait for the final numbers to come in. This week saw the publication of "2006: A Year in Review" from Cornerstone Research/Stanford Law School Securities Class Action Clearinghouse and "Recent Trends in Shareholder Class Action Litigation: Filings Plummet, Settlements Soar" from NERA Economic Consulting. The reports use filing data through mid-December 2006.
The findings include:
(1) Filings plunged to a record low since the passage of the PSLRA in 1995. As usual, the reports differed in their calculation of the exact number of filings. Cornerstone found that there were 110 filings (as compared to a post-PSLRA average of 193), while NERA found there were 129 filings (as compared to a post-PSLRA average of 239).
(2) The average settlement, excluding settlements over $1 billion, was $34 million (up 37% over 2005). The increase is driven almost entirely by the growth in settlements over $100 million. (NERA)
(3) There has been a dramatic decrease in the total market capitalization losses associated with filings (44% decline in losses measured as of the last day of the class perod), which is a product of fewer filings and lower market capitalization losses per filing. (Cornerstone)
(4) A significant portion of cases are dismissed within the first two years. The Second and Ninth Circuits, which together receive the most cases, dismiss approximately 20% within this time period. The Fourth Circuit has the highest rate, dismissing 31% of cases within two years, while the Tenth Circuit has the lowest, at 5%. (NERA)
Why the decline in filings this past year? Possible reasons put forward by the reports include better corporate governance (Cornerstone and NERA), a strengthened federal enforcement environment (Cornerstone), a strong stock market combined with lower stock price volatility (Cornerstone), and distraction on the part of the plaintiffs' bar (NERA).
Addition: Point of Law and D&O Diary present some thoughts on the filings decline.
Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released an interim report on federal securities class action filings in 2006. The findings include:
(1) The number of filings in the first half of 2006 is at the lowest level for any six-month period in the last ten years. There have been 61 filings to date, which would annualize to 123 filings (as compared to a post-PSLRA average of 194 per year).
(2) The filings that have been made in 2006 are associated with significantly lower market capitalization losses as compared to 2005 and historical averages.
(3) Options backdating suits have not contributed significantly to the number of filings, with most of the litigation activity in that area focused on derivative actions. (Securities Litigation Watch is keeping a running total on the number of options backdating securities class actions, which currently stands at eleven.)
Hard on the heels of the NERA study, PricewaterhouseCoopers has released its own review (free regist. req'd) of the year in securities class actions. A few highlights:
(1) The average settlement value, excluding the Enron and WorldCom settlements, increased dramatically to $71.1 million in 2005. (Note that there is a significant discrepancy between PwC and NERA on this point, with NERA reporting a much lower number.)
(2) The number of filings was down significantly last year (from 203 cases to 168 cases), but PwC finds that a "seesaw pattern has occurred somewhat regularly during the period from 1996 through 2005, and it is likely that 2005's drop in filings of private securities litigation cases is only a respite."
(3) For the first time since 1996, the number of cases alleging accounting violations dropped below 50%. PwC suggests that two factors may be at work: (a) improved internal accounting and financial reporting controls; and (b) the continued growth of "product-efficacy" cases, especially against pharmaceutical and healthcare companies, which made up 10% of all cases in 2005.
(4) The study finds little correlation between financial restatements and filings, noting that "many restatements do not result in significant stock-price drops." (For more on this topic, see this recent post.)
NERA Economic Consulting has released a study entitled "Recent Trends In Shareholder Class Action Litigation: Beyond the Mega-Settlements, is Stabilization Ahead?" The study reaches the following notable conclusions:
(1) The average settlement value hit a new high in 2005 (even excluding WorldCom and Enron) of $24.3 million. Nevertheless, NERA believes that "average settlements will not rise further over the next two or three years and, instead, could even fall" given that most of the cases associated with the stock market crash of 2000-2002 have been resolved.
(2) The study examines various factors that can raise settlement values - e.g., presence of accounting allegations (+20%), related official investigation (+25%), and lead plaintiff is an institutional investor (+33%).
(3) There were 209 filings in 2005. Although this is the lowest number since 1997, most of the difference is due to a sharp fall in filings in the 9th Circuit and "it is far too early to conclude there is a downward trend."
Cornerstone Research has released an updated report on post-PSLRA settlements of securities class actions through December 2005. The findings include:
(1) Excluding the Enron and WorldCom settlements, the value of securities class action settlements was $3.5 billion in 2005, up from $2.9 billion in 2004.
(2) The settlement value increase is attributable to a 10% increase in the number of settlements (124 in 2005 vs. 113 in 2004), a $2.1 million increase in average settlement value ($28.5 million in 2005 vs. $26.4 million in 2004), and an increase in the number of settlements over $100 million (9 in 2005 vs. 7 in 2004).
(3) The median value of settlements increased 19% to $7.5 million in 2005.
The press release announcing the report can be found here.
Quote of Note (press release): "[W]hile the Cornerstone study finds a significant increase in settlement amounts in 2005, a report recently issued by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research found decreases in 2005 in both the number of case filings, as well as the amount of investor losses associated with case filings. Since there is a delay between case filings and case resolutions, these results suggest - along with the effects of the Dura decision - potential lower settlement values in the future."
The Cornerstone/Stanford report on securities class actions filings in 2005 has been the subject of press commentary, primarily focused on the "sharp decline" in cases. The New York Times has a Legal Beat column discussing the report in today's edition.
There are two interesting questions that arise out of the report's findings.
First, is the decline actually significant? Securities Litigation Watch has done a great job of pointing out that commentators are ignoring the actual statistical trend - perhaps because they are merely relying on the press release that accompanied the report. In the context of post-PSLRA filings (i.e., since 1996), last year's 175 filings is entirely consistent with the normal up-and-down pattern.
Second, and perhaps more interestingly, why was there no rise in the number of securities class action filings last year given the astonishing increase in financial restatements? There were an estimated 1200 financial restatements in 2005, nearly twice as many as in 2004. Although not every financial restatement brings a lawsuit, there is little doubt that the correlation is significant. The Cornerstone/Stanford report found that 89% of securities class actions filed in 2005 alleged misrepresentations in financial documents.
The New York Times column states that restatements are becoming more commonplace and may not indicate misconduct, but then quotes some experts suggesting that the real reason for the decline in filings is a combination of the PSLRA and judicial decisions (including Dura) that have made it more difficult for investors to bring cases. One missing link, however, is the relationship between restatements and stock price declines. The announcement of a restatement that is not accompanied by a significant stock price decline is unlikely to engender a securities class action (not enough damages). So it would appear that we need at least one more piece of the statistical puzzle: how many of last year's restatements led to a significant stock price decline?
Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a report on federal securities class action filings in 2005. The findings include:
(1) The overall number of securities class actions filed in 2005 decreased more than 17%, falling from 213 filings to 176 filings. This year's filing rate is nearly 10% below the post-PSLRA historic average. Moreover, the alleged investor losses associated with the cases decreased significantly.
(2) Filing activity declined in the technology and communications sectors (down 32% from 2004). The consumer non-cyclical sector (e.g., biotechnology, commercial services, cosmetics, food, healthcare products) gave rise to the most securities class action litigation.
(3) There was a substantial increase in the number of securities class actions alleging misrepresentations in financial reporting (from 78% in 2004 to 89% in 2005) and false forward-looking statements (from 67% in 2004 to 82% in 2005).
The authors of the report suggest that the decrease in overall filings may be the result of the large majority of suits related to the boom-and-bust cycle of the late 1990s-early 2000s having already been filed, improvements in corporate governance, and less stock market volatility.
The joint press release announcing the report can be found here.
NERA Economic Consulting has released a study entitled "Recent Trends In Shareholder Class Action Litigation: Are WorldCom and Enron the New Standard?" The study reaches the following notable conclusions:
(1) In the first half of 2005, the median settlement value of securities class action cases jumped nearly 30% to $6.8 million from $5.3 million last year. The study states that the driving factor behind this increase is a sharp reduction in "nuisance" settlements of under $3 million.
(2) While bigger settlements have yielded lower percentage fees for plaintiffs' counsel, the average settlement in 2005 will result in over $6 million in fees (as compared to $3.6 million five years ago).
(3) Securities class action filings are down by 17 percent in the first half of 2005. The study finds that the slowdown is attributable to a drop in filings in the 9th Circuit, where plaintiffs' firms may have delayed filing cases pending the Dura decision.
(4) Dismissal rates have nearly doubled after the passage of the PSLRA and account for 39.3% of dispositions of securities class actions filed 1996-2002. This increase offsets the increased likelihood that a public company will be sued in a securities class action. As a result, the annual probability of a company facing a suit that survives a motion to dismiss has remained roughly constant at 1.2%.
The statistics on dismissal rates are surprising, especially since an earlier NERA study found that the PSLRA had not significantly increased the likelihood of a securities class action being dismissed.
The 2004 Securities Litigation Study from PricewaterhouseCoopers contains a number of interesting statistics. A few highlights:
(1) Securities class actions were filed against 29 foreign companies listed on U.S. exchanges. This is the highest number of cases against foreign companies ever filed in one year.
(2) Securities class actions alleging accounting-related securities fraud versus securities class actions alleging non-accounting-related securities fraud divided roughly 60/40 percent. This has been a relatively constant statistic since the passage of the PSLRA.
(3) Public retirement and investment funds and other institutional entities comprised 47 percent of the lead plaintiffs in all securities class actions filed through June 30, 2004. This compares to 41 percent of all cases with such lead plaintiffs in 2003 and 51 percent in 2002.
Quote of note: "Exactly what 2004 securities litigation statistics, trends and events are telling us is that the future will be more challenging. Look for steady, or somewhat increasing, trends in the number of private securities litigation class actions and regulatory enforcement actions on average over the next several years. Expect continuing significant increases in the dollar-values of private securities class action settlements of the average, median, and 'high-dollar' values of settled cases for years to come. Contemplate the knock-on effects of Sarbanes-Oxley, increased regulatory enforcement actions, and enhanced vigilance by independent auditors (regarding accounting irregularities and financial frauds), and expect a significant increase in 'Section 10A' matters, SEC (and other regulators) investigations, and internal corporate investigations leading to more restatements, more regulatory enforcement actions, and more private securities litigation. And, assume that a few bad management of a number of some publicly-listed companies will continue to try to game the system and securities markets."
Cornerstone Research has released an updated report on post-Reform Act settlements of securities class actions through December 2004. The findings include:
(1) The value of securities class action settlements in 2004 was a record $5.5 billion (the previous record was $4.5 billion in 2000). Even excluding Citigroup's $2.6 billion settlement of WorldCom-related claims, the year-to-year increase was substantial.
(2) For cases settled in 2004 (as compared to 2003), there was a 40% increase in the length of the class period and larger market capitalization losses. Cornerstone attributes this development to the fact that many cases settling in 2004 were originally filed during the bear market that began in 2000.
(3) Despite the increase in overall settlement values, more than 65% of all settlements in 2004 were for less than $10 million and approximately 80% were for less than $30 million.
Cornerstone's press release on the study can be found here.
NERA Economic Consulting has released a study entitled "Recent Trends In Shareholder Class Action Litigation: Bear Market Cases Bring Big Settlements." The study reaches the following notable conclusions:
(1) There was a 33% increase in the mean settlement value of securities class actions in 2004 ($27.1 million in 2004, up from $20.3 million in 2003). NERA found that this increase was fueled by cases dealing with higher investor losses and is likely to continue for the next several years.
(2) On average, a 1% increase in investor losses results in a .4% increase in the size of an expected settlement.
(3) Although a number of very large settlements caused the increase in the mean settlement value, the dollar value of the typical settlement is actually falling. Over 70% of the settlements in 2004 were valued at $10 million or less.
(4) Over a five-year period, a public corporation faces a 10% probability of facing a securities class action. This probability has risen since the passage of the PSLRA.
(5) The Sarbanes-Oxley Act of 2002 does not appear to have had an impact on the number of securities class action filings or the size of settlements.
NERA's press release on the study can be found here.
Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a report on federal securities class action filings in 2004. The findings include:
(1) Securities class action filings increased by 17% from 2003 to 2004, rising from 181 companies sued to 212 companies sued (the post-PSLRA annual average is 190 filings).
(2) The total decline in market capitalization from the beginning to the end of the purported class periods nearly tripled from $58 billion to in 2003 to $169 billion in 2004. This increase is attributable to a small number of cases with unusually large market capitalization declines.
(3) The top three circuits in terms of number of filings in 2004 were the Ninth Circuit (64 filings), the Second Circuit (45 filings), and the Eleventh Circuit (20 filings).
(4) The number of issuers sued in the technology sector nearly doubled, fueling the rise in the number of filings in the Ninth Circuit (primarily California).
The joint press release announcing the report can be found here.
A study by Deloitte & Touche and a law firm has found that companies who have reported internal control weaknesses related to financial reporting have not been disproportionately hit with securities litigation. WebCPA has an article on the study, which found that only 6 percent of the nearly 300 companies analyzed were served with a class action securities complaint related to the disclosed deficiencies. It is not clear from the article, however, whether the study considered the impact of stock price movements related to the disclosures. The release of the study comes as companies prepare to meet the internal control disclosure deadlines of Sarbanes-Oxley Section 404.
Quote of note: "The disclosures in the study ranged from simple and significant deficiencies, to reportable conditions and material weaknesses. Material weaknesses represented 52 percent of the disclosures."
PricewaterhouseCoopers has released its 2003 Securities Litigation Study, which contains a number of interesting statistics. A few highlights:
(1) Of the 175 securities class actions filed in 2003, 107 were accounting-related. The primary allegation in accounting-related cases continues to be revenue recognition issues, alleged in over 50% of these cases.
(2) The percentage of cases with union/public pension funds as lead plaintiffs has grown steadily from 1996 (less than 3% of cases) to 2003 (28% of cases).
(3) Average settlement values for all cases settled in 2003 was $23.2 million, up 20% from 2002. There were an increasing number of large settlements, including 6 settlements of more than $100 million.
(4) PwC has begun to track "triple jeopardy" cases, where companies are subject to securities class actions along with SEC and DOJ investigations. There was an all-time high of over 40 of these cases in 2002, but last year saw this number fall to 8 cases (closer to historic norms).
Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse have released a report on federal securities class action filings in 2003. The findings include:
(1) Securities class actions (not including IPO allocation, analyst research, or mutual fund trading practices cases) declined by 22% between 2002 and 2003, falling from 225 to 175 filings.
(2) Companies sued in 2003 lost more than $540 billion in market capitalization, down from $1.9 trillion in 2002.
(3) There were fewer huge cases. In 2003, there were 14 filings in which the defendant companies lost more than $10 billion in market capitalization. In 2002, there were 40 filings with this type of market capitalization loss.
(4) The top three circuits in number of filings in 2003 were the Second Circuit (37 filings), the Ninth Circuit (34 filings), and the Eleventh Circuit (21 filings).
(5) Insider trading by corporate defendants was alleged in 33% of the 2003 filings (as compared to 26% in 2002).
(6) Auditors and underwriters were named as defendants in a very small percentage of all filings both in 2002 and 2003.
The joint press release announcing the report can be found here.
Cornerstone Research has released an updated report on post-Reform Act settlements of securities class actions through 2003. The findings include:
(1) Of the 96 settlements in 2003, almost 85% were for less than $20 million. Five cases settled for more than $100 million.
(2) 20% of post-Reform Act settlements have involved Section 11 or 12(a)(2) claims and median settlements as a percentage of "estimated damages" are significantly higher for these cases.
(3) Approximately 30% of post-Reform Act settlements have involved institutions serving as lead plaintiffs (as compared to approximately 15% before the Reform Act). After controlling for various factors, the report finds that settlement amounts are higher in these cases.
(4) Less than 15% of post-Reform Act cases have been accompanied by the filing of a derivative action.
Cornerstone's press release can be found here. The company also announced that its report on securities class action filings for 2003 (done jointly with Stanford Law School's Securities Class Action Clearinghouse) will be released shortly.
Addition: The New York Law Journal (via law.com - regist. req'd) has an article on the report.
ISS's Securities Class Action Services ("SCAS") has issued a list of the top 50 plaintiffs' law firms ranked by the total dollar amount of final securities class action settlements occurring in 2003 in which the law firms served as lead or co-lead counsel.
The full report can be found here. Securities Litigation Watch, the blog authored by Bruce Carton of SCAS, also has a post summarizing the results.
NERA Economic Consulting has released a study entitled "Recent Trends In Securities Class Action Litigation: 2003 Early Update." The study reaches the following notable conclusions:
(1) Although three of the six largest securities class action settlements of all time were in 2003 (Lucent, DiamlerChrysler, and Oxford Health Plans), the average settlement amount fell 15% to $19.8 million as compared to last year. Two-thirds of all settlements in 2003 were for less than $10 million.
(2) There were 210 securities class action filings in 2003. This is consistent, excluding laddering and analyst cases, with the post-PSLRA average of 212 filings a year.
(3) Over a five-year period, the average public corporation faces a 9% probability that it will face at least one securities class action suit.
(4) Following the passage of Sarbanes-Oxley in 2002, there have been one-third fewer dismissals of securities class actions. According to NERA, the "lower rate of dismissal suggests that either cases are proceeding more slowly or that judges are being more generous at the margins in evaluating the merits of cases."
PricewaterhouseCoopers has released a study on the role of public pension funds in securities class actions. Notable results:
(1) The number of cases with public pension funds as lead plaintiff has steadily increased since the passage of the PSLRA in 1995 - from 4 cases filed in 1996 to 56 cases filed in 2002.
(2) Of the more than 100 active cases where a public pension fund is acting as lead plaintiff, 80% allege accounting issues.
(3) In 2003, 15 settlements averaging over $120 million were reached in cases where a public pension fund served as lead plaintiff -- sixteen times the average value of the remaining 85 cases settled last year.
There are a lot of conclusions that could be drawn from this data, but it is certainly clear that public pension funds are taking the lead in large accounting fraud cases.
The number of foreign companies listed on U.S. stock exchanges has grown over the past few years. In 2002, there were over 1300 foreign registrants. With access to the U.S. capital markets, however, also comes the possibility of securities litigation brought by U.S. investors.
According to a study by PricewaterhouseCoopers, filings against foreign companies have been on the rise. In 2002, 22 foreign companies were names in securities class actions. This total is an increase of 47% over the 15 cases filed in 2001 and 29% higher than the previous record of 17 cases filed in 1998.
In a press release issued yesterday, PWC announced some additional findings, including:
1) Thus far in 2003, 13 foreign companies have been sued in securities class actions.
2) The average post-PSLRA settlement in cases against foreign companies is nearly $23 million.
3) More than 77% of the cases against foreign companies contained accounting allegations in 2002, and more than half of the 2003 cases contain accounting allegations.
PricewaterhouseCoopers LLP has issued a study on private securities litigation trends in 2002 and the first part of 2003. Notable findings for the period from January 1, 2003 to July 31, 2003 include:
(1) 60 securities class actions were settled with a total settlement value of $1.5 billion ($25.1 million average).
(2) The total number of securities class action filings in 2003 is on track to be approximately 190 (down from 217 in 2002).
(3) The number of securities class actions involving health services and pharmaceutical companies is rising, while the number of cases against telecommunications and utlilities companies has dropped dramatically.
Quote of note (from the related press release): "In 2002, approximately one out of every five shareholder class actions involved either a Department of Justice investigation, or a federal indictment, conviction or guilty plea/conviction, a 200 percent increase over 2001, and a 290 percent increase over the average for the years 1996 through 2000."
Veritas, an Atlanta corporation that provides securities litigation data and services, has released some of the results from its review of class action activity from April 1, 2003 to June 30, 2003. Notable findings include:
(1) 59 securities class actions were filed during the second quarter of 2003, a slight decline from the 65 securities class actions filed during the first quarter of 2003.
(2) Milberg Weiss was bumped out of its historically commanding position for lead counsel appointments by Schiffrin & Barroway, who garnered 27% of lead counsel appointments in the second quarter (Milberg came in second with 23% of the appointments).
(3) Milberg Weiss continued to dominate the settlement arena, with 30% of the settlements that were approved in the second quarter for a total of 68% of the total funds recovered.
NERA, an economics consulting firm, has released its latest study on securities class actions entitled "Recent Trends in Securities Class Action Litigation: Will Enron and Sarbanes-Oxley Change The Tides?" The study reached the following conclusions about the trends in securities litigation since the passage of Sarbanes-Oxley in June 2002:
1) Securities class action filings have not increased dramatically (annual rate of 214 filings, compared to average annual rate of 208 filings from 1996-2001).
2) Dismissals have fallen sharply (half as many dismissals as in the previous 11 month period).
3) Average settlement values have fallen modestly ($22.7 million per settled case, compared to $25.5 million from 1996-2002).
These short-term trends are not nearly as interesting, however, as NERA's findings suggesting that the PSLRA (enacted in 1995) has not achieved Congress' goal of reducing meritless securities litigation. Indeed, the chances of a publicly-traded company being sued in a securities class action has increased (by 40.5%), while the percentage of cases dismissed (12-13%) or settled for nuisance value (24%) have remained roughly the same. These results lead to one question: has all of the controversy over the PLSRA (presidential veto, periodic calls for its repeal, etc.) been much ado about nothing?
Congress may want to take a hard look at the lessons of the PSLRA as it considers the Class Action Fairness Act and other tort reforms.