Institutional-Grade Lawsuits: Fewer Dismissals, Larger Settlements

Institutional investor-led securities class action cases tend to fare better than the average suits, according to Stanford Law School research.

(July 25, 2013) - Securities class action lawsuits have a better chance of going the distance with judges when they are led by institutional investors, a study has found.

Between 1996 and 2010, judges dismissed 35% of cases led or co-led by an institutional investor, and 42% that weren't. Stanford University's law school and New York-based Cornerstone Research collaborated on the data as part of their Securities Class Action Clearinghouse project.

Having institutional investors on the dockets also bodes well for settlements on securities cases, Cornerstone Research's Senior Vice President John Gould said: "In prior research, we have found that the presence of an institutional investor as the lead or co-lead plaintiff matters when it comes to settlements."

Settlements for cases with an institutional investor plaintiff are higher, Gould has found, even after controlling for other factors such as an accompanying investigation by the US Securities and Exchange Commission or accounting-related allegations.

And part of the reason why institutional investor led actions are less likely to be dismissed could be because they tend to be involved in "stronger" cases, Gould surmised.

This latest research showed a gathering trend towards dismissal for cases filed in 2009 and 2010, although it was not broken down by plaintiff type. Many of these related to mergers and acquisitions, which the study said tend to have higher rates of dismissal in general.

One such case that did end favorably for its institutional plaintiffs recently resulted in the largest securities class action settlement ever. Bank of America shelled out $2.43 billion to teachers' retirement systems in Ohio, Texas, and California-among many other plaintiffs-for its mid-financial crisis acquisition of Merrill Lynch.    

Read the entire study on securities class action filings here

 

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