Class-action settlement amounts second-lowest since 2008, Cornerstone reports

Total settlement dollars from securities class actions in 2017 fell to the second-lowest level since 2008 even as the number of settlements remained steady, according to a report by Cornerstone Research released Wednesday that also found the lowest level of involvement by public pension funds in 10 years by one measure.

The report, Securities Class Action Settlements — 2017 Review and Analysis, found 81 securities fraud class-action settlements approved by courts in 2017, down from 85 the previous year, while the total value of those settlements was $1.5 billion, compared to $6.1 billion in 2016. The report attributed the drop in settlement dollars partly to fewer mega settlements of $100 million or more, and a record number of smaller settlements.

Lower median settlement amounts in 2017 were primarily driven by a reduction in "simplified tiered damages," which are based on the dollar value of a defendant's stock price movements on specific dates, and are a proxy for potential shareholder losses. In 2017, 39% of settlements with simplified tiered damages of $50 million or greater involved a public pension fund as lead plaintiff, in contrast to 48.6% on average from 2008 to 2016, the report found.

Public pension funds were lead plaintiffs in 32% of settlements in 2017, down from 41% in 2016 and 46% in 2012.

The average settlement value in 2017 also saw a 75% drop, from $72 million in 2016 to $18.2 million in 2017, and no settlement exceeded $250 million. More than half of 2017 settlements were for $5 million or less, Cornerstone found.

"A combination of lower estimates of the proxy for plaintiff-style damages and smaller issuer defendant firms contributed to this decrease," said Laura Simmons, Cornerstone Research senior adviser and report co-author, in a statement.

Other trends noted in the report were a continued decline of settled cases alleging accounting violations, and a surge in derivatives cases corresponding to relatively small settlements. Approximately 20% of settled cases in 2017 involved an accompanying action from the Securities and Exchange Commission, up from 18% in 2016.