Settlements in securities class-action lawsuits hit a 16-year low in 2014, said a report from Cornerstone Research, which also found public pension funds participating in fewer settlements.
Total settlements dropped to $1.1 billion from $4.8 billion in 2013, primarily due to a lack of large cases. That was a 78% decline from 2013, and an 84% decline from the previous nine-year average, the economic and financial consulting firm found.
A key factor for the decline was a 60% year-to-year decrease in estimated damages, which help to predict settlement amounts. “Based on recent low levels of stock price volatility, we are expecting that investor losses will be lower in the future,” said Laura Simmons, report co-author and senior adviser, in an interview. If the current trend continues, that should also mean fewer cases, she said.
There were also fewer large cases involving third-party defendants and public pension funds as lead plaintiffs, which correlate with higher settlements. Public pension funds’ typical association with cases involving larger market capitalization losses, more docket entries prior to settlement, and related derivative and Securities and Exchange Commission actions, was different last year, Cornerstone found. In 2014, institutional investors were lead plaintiffs in 63% of all cases approved for settlement, and public pension funds represented 37%, compared to 44% in 2013 and 47% in 2012.
That was down from the previous two years, but still higher than a decade ago when public pension funds started becoming more active in securities class actions, Ms. Simmons said. “It’s reversing the trend of recent years but returning to levels earlier in the last decade. It’s down at this point but still up.”
When public pension funds were the lead plaintiff, the median settlement in 2014 was $13 million, compared to $5 million for other lead plaintiffs. Public pension funds served as lead plaintiff in 52% of settlements when the estimated damages were higher than $500 million.
The report is available on Cornerstone’s website.