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Securities class-action settlements, payouts jump in 2016 — report

The number of court-approved federal securities class-action settlements rose to 85 in 2016, the highest level since 2010 and up from 80 in 2015, said a report released Wednesday by Cornerstone Research.

The record number of 270 case filings in 2016 contributed to the increase. That, combined with four consecutive year-over-year increases in the number of case filings, could drive up the number of settlements in future years, Cornerstone said.

The report also found that the percentage of settlements with public pension funds as the lead plaintiffs rose to 41% in 2016, up from 39% in 2015.

Regarding settlement amounts, the average settlement in 2016 was $70.5 million in 2016, up from $38.4 million in 2015, driven in part by 10 “mega settlements” in 2016 of more than $100 million, the highest number of mega settlements in the last 10 years, and accounting for 81% of all settlement dollars in 2016, Cornerstone said.

In total, courts approved nearly $6 billion in settlements in 2016, the second highest amount in the last 10 years, and up from $3.1 billion in 2015.

“While the spike in total settlement value in 2016 was largely driven by growth in very large cases, an increase in the median settlement amount also indicates a shift for more typical securities class actions,” said Laura E. Simmons, senior adviser at Cornerstone Research and co-author of the report, in a news release. “Overall, defendant firms in 2016 were substantially larger compared to 2015, and we know from our research that larger firms are generally associated with higher settlement amounts.”

The median settlement amount in 2016 was $8.6 million, up from $6.1 million in 2015

Among the report’s other findings:

  • Average estimated damages rose to $4.8 billion in 2016, the second highest level in 10 years and up from $4.4 billion in 2015. Median settlements as a percentage of estimated damages was 2.5% in 2016, the highest percentage since 2011 and up from 1.8% in 2015.
  • The median disclosure dollar loss in 2016 was $135 million, up from $90 million in 2015.
  • Two of the 10 mega settlements in 2016 exceeded $1 billion, making it the first year since 2006 with more than one settlement of that size.
  • 2016 had the highest percentage of cases settling within two years of being filed since 2006.

The full report is available Cornerstone’s website.