The number of class action suits with pension funds as the lead plaintiff rose for the third consecutive year, according to a report from Cornerstone Research. The report also found that more than half of settlements with estimated damages of more than $500 million had a public pension plan as its lead plaintiff
Last year, US courts approved the highest number of securities class action settlements since 2010, according to the Securities Class Action Settlements—2016 Review and Analysis. report.
“While the spike in total settlement value in 2016 was largely driven by growth in very large cases,” said Laura Simmons, a Cornerstone Research senior advisor, and a coauthor of the report, “an increase in the median settlement amount also indicates a shift for more typical securities class actions.”
The total value of settlements approved by courts in 2016 was $5.99 billion, nearly twice the $3.07 billion recorded the previous year. However, the number of settlements only increased to 85 from 80, which indicates a significant number of those were so-called mega settlements in 2016.
Of the 10 approved mega settlements in 2016, four were between $100 million and $250 million, four were between $250 million and $500 million, and two were more than $1 billion. That made the median mega settlement in 2016 $318 million, which is almost twice the median reported the previous year. In 2016, $4.8 billion of the nearly $6 billion total settlement value came from mega settlements.
The report also found that the median settlement amount for cases with institutional investor lead plaintiffs was more than two and-a-half times that of cases with no institutional investor as a lead plaintiff.
Cornerstone said that cases in which public pension plans serve as lead or co-lead plaintiff typically involve larger defendants, longer class periods, securities in addition to common stock, accounting allegations, and other indicators of more serious cases such as criminal charges. These cases are also associated with taking longer to reach settlement.
However, the report also said that although growth in the number of settlements may continue in the coming years, the most recent data indicate a potential decline in very large cases, as measured by market capitalization losses. The report suggests that there could be a drop in mega settlements at some point in the next few years.
By Michael Katz