Settlement dollars reach 16-year low

Dr. Laura Simmons, Senior Advisor, Cornerstone Research

Dr. Laura Simmons, Senior Advisor, Cornerstone Research

A Cornerstone Research report released at the end of March shows that total settlement dollars in securities class actions hit their lowest mark in 16 years in 2014. The average settlement amount also reached its lowest level since 2000, according to Securities Class Action Settlements—2014 Review and Analysis.

Total settlements dropped to $1.1 billion (€1 billion), from $4.8 billion (€4.4 billion) in 2013, primarily due to a lack of large cases. The largest settlement amount in 2014 was $265 million (€246 million), compared with $2.5 billion (€2.3 billion) in 2013. According to the report, the number of settlements remained largely unchanged last year at 63.

The report also examines ‘estimated damages’, the most important factor in predicting settlement amounts.” Average “estimated damages” decreased 60% from 2013 and were 70% lower than in 2012.

“Since stock price movements are fundamental to damages calculations, lower ‘estimated damages’ may stem from the reduced stock price volatility during the years when many of these cases were filed,” said report co-author Dr. Laura Simmons, Senior Advisor in Cornerstone Research’s Washington office. “And, as the market has remained relatively stable on the whole in 2013 and 2014, it suggests that this trend of lower ‘estimated damages’ for settled cases may continue.”

In addition to lower average ‘estimated damages’, a smaller proportion of large cases involved third-party defendants and public pensions as lead plaintiffs, which contributed to the lower level of settlement amounts. Both of these factors are typically associated with higher settlements.