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Class-action settlement total rises sharply – Cornerstone report

Total settlement dollars from securities class-action lawsuits rose significantly in 2018 following a down year in 2017, according to a report by Cornerstone Research released Tuesday.

The report, "Securities Class Action Settlements: 2018 Review and Analysis," found that the total settlement amount approved by courts rose to $5 billion last year, up from the $1.5 billion total in 2017 and 50% higher than the annual average for the prior nine years. The increase was paced by five settlements of at least $100 million.

The number of settlements dipped slightly to 78 from 81 the year prior, but the average settlement amount increased to $64.9 million from $18.7 million. The median amount rose to $11.3 million in 2018 from $5.1 million in 2017, Cornerstone found.

"It was unusual to see the significant increase in average and median settlement amounts in 2018, as a number of factors typically associated with higher settlements actually decreased," said Laura E. Simmons, a report co-author and a Cornerstone Research senior adviser, in a statement. "Based on observable data, our results suggest that the increase is, at least in part, driven by economic factors rather than case merits."

In 2018, defendant firms in settled cases were 50% larger than in 2017 and more than 20% larger than over the prior five years, while both the proportions of settlements involving delisted firms, as well as bankrupt firms, were the lowest over the past decade, the report said. "Taken together, this suggested that economic factors played an important role in the increase in settlement size in 2018," the report stated.

In addition to the five settlements that topped $100 million, there were 32 cases that settled for between $10 million and $49 million last year, a 60% jump over 2017, the report said.

The proportion of settlements involving a public pension plan as lead plaintiff continued to decline in 2018, this time to 28%, according to the report. In 2017, public pension funds were the lead plaintiff in 32% of cases and in 2016, 41%. Public pension fund involvement was at its lowest level in the past 10 years, the report said.