Typically, cases involving institutional investors as lead plaintiffs, particularly public pension plans, have significantly higher settlement amounts, Cornerstone said in a press release. The research found that while the total value of settlements dropped in 2007, the median settlement reached the highest level ever at $9 million.
The release said the number of securities class action cases settled last year rose 21%, from 92 in 2006 to 111 in 2007, but the total value of these settlements plummeted 60% from the all-time high of $17.2 billion reported in 2006 to $7 billion in 2007. More than 70% of the drop was due to the largest settlement in history, the $7.2 billion Enron case settlement, mostly being approved in 2006, Cornerstone said.
The $3.2 billion Tyco International settlement, the third largest case settlement in history behind Enron and WorldCom ($6.2 billion), accounted for almost 45% of the total value of settlements approved in 2007, according to the press release. Tyco was the only settlement approved in 2007 to exceed $1 billion and is only the seventh settlement in history above $1 billion.
The number of settlements in excess of $100 million declined from fourteen in 2006 to only nine in 2007; however, middle range settlements ($10 – 20 million) increased from just over 10% of the total in 2006 to nearly 25% in 2007. Settlements for less than $5 million declined to about 35% of the total.
While 2006 had eighteen settlements with estimated damages (the most important determinant of settlement amounts) in excess of $5 billion, 2007 had just ten, the research showed. In 2007 only 24% of settlements (twenty-seven cases) involved estimated damages of $1 billion or more – the lowest percentage since 2003.
Accounting issues continued to be included in the allegations of the majority (more than 55%) of all settled cases (See Record Low Number of Securities Class Action Suits Filed in 06 ), but for the second year in a row, the percentage of cases involving allegations of financial statement restatements declined (30%).
A full copy of Cornerstone Research’s Securities Class Action Settlements: 2007 Review and Analysis is available at http://securities.cornerstone.com .