According to research by NERA Economic Consulting, all of the categories remained flat or declined, despite a handful of extremely large suit settlements in 2003. The greatest potential impact of SOX: the pace of dismissals of securities class action cases has slowed markedly.
In the 17 months since Sarbanes-Oxley went into effect, NERA said the average settlement fell 15% in 2003 to $19.8 million from $23.3 million in 2002. The median settlement declined by 14% to $5.4 million in 2003, down from $6.3 million in 2002.
Investor losses in the median case settling in 2003 were $215 million, more than three times the median of $65 million in 1996. The median recovery rate, a better measure of plaintiff compensation than dollar-settlement values, remained near an all-time low of 2.8% in 2003, slightly up from 2.7% in 2002, but down from a high of 7.2% in 1996, researchers found.
All of this comes despite the fact that three of the largest shareholder class action settlements of all time occurred during 2003, the study pointed out. Lucent Technologies, Inc. paid the second-largest settlement of all time, $517 million, while the other two settlements, paid by DaimlerChrysler AG and Oxford Health Plans, were the fifth and sixth largest settlements in the history of securities class action litigation. Each settlement paid $300 million to class action plaintiffs, according to NERA.
These large settlements, however, are connected to large investor losses: the associated investor losses ranked first, second and fifteenth among settled cases, the NERA researchers said. “Investor losses, an estimate of what investors lost over a class period relative to an investment in the S&P, are the single most powerful determinant of settlements,” they write in their study.
The study also found:
- The rate at which cases are dismissed has fallen by a third since SOX, a statistically significant drop compared to the earlier dismissal rate. According to NERA, this lower pace of dismissals suggests that either cases are advancing more slowly or that judges may be allowing more cases to proceed.
- The pace of securities class action filings dropped in 2003 for the second year in a row to 210, in line with the recent average of 212 filings each year.
- The chances that a corporation would be the target of a securities class action suit actually declined in 2003. The likelihood that the average public corporation would face a securities class action lawsuit was 1.8% in 2003. This is a substantial, although not statistically significant, drop from 2002 when the probability of a suit reached 2.3%.
- Although there were six settlements over $100 million in 2003, two thirds of securities class action settlement were under $10 million.
The NERA report, Trends In Securities Class Action Litigation: 2003 Early Update, is at http://www.nera.com/_template.cfm?c=6167&o=6549 .