Cost of settling class actions in securities cases rose in '09

But dollar values were still below 2005-07 peak

Apr 11, 2010 @ 12:01 am

By Zack Phillips

The cost of settling securities class actions increased by 35% last year, according to a report released last month by Cornerstone Research.

While the increase over 2008 was dramatic, total costs for 2009 were below the levels seen between 2005 and 2007, the report said.

The increase in the number of settlements approved was relatively small, but the dollar value of the settlements increased due to a variety of factors, the researchers said.

The median settlement in securities class actions was $8 million in 2009, compared with a median settlement of $7.4 million between 1996 and 2008.

The factors that correlated with higher settlement amounts included: alleged violations of generally accepted accounting principles, having an underwriter or outside auditor named as a defendant, having a pension plan or an institutional investor as a plaintiff, and the involvement of the Securities and Exchange Commission.

The 2009 settlements involved financial firms more than other sectors, followed closely by pharmaceutical and high-tech firms. Of the cases involving financial firms, all settlements were for shareholder suits, and not for credit-crisis-related claims, the report noted.

Over the past four years, plaintiffs and defendants have settled more slowly, taking an average of three and a half to four years from the filing date. Previously, cases took an average of three years to settle, the report said.

Zack Phillips is an associate editor with sister publication Business Insurance.


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