Investor Class Action Lawsuits Shrunk Last Year, As Did Settlements: Report

The number of investment fraud or securities class action lawsuits filed last year remained near historic lows, and investors who brought the claims only collected about a third of the money in 2014 that they typically collect each year, according to a recent report. 

The economic and financial consulting group Cornerstone Research released a report (PDF) this month on security class action filings and settlements in 2014, and compared those investor cases to prior years.

The group found that the number of claims filed last year were similar to those brought in 2013, but notes that both years had significantly fewer securities fraud class action lawsuits than other years. One of the few exceptions was where it came to pharmaceutical companies, which saw significant increases of investor lawsuits.

“Plaintiffs filed 170 new federal class action securities cases (filings) in 2014 — four more than in 2013,” the report states. “The number of 2014 filings was 10 percent below the historic average of 189 filings observed annually between 1997 and 2013.”

The researchers also found that those plaintiffs collected only a fraction of the money overall, as plaintiffs in previous years. According to the report, the Maximum Dollar Loss (MDL) of companies due to securities class action lawsuits in 2014 was $215 billion. That is 66% below the historic annual average of $630 billion and is the lowest amount collected since 1997.

According to the report, drug companies are bucking the trend when it comes to securities lawsuits, increasing for the second year in a row. In 2014 there were 15 securities class action lawsuits filed against pharmaceutical companies. That compares to 14 in 2013 and 10 in both 2011 and 2012.

The group noted that since the mid-2000s, securities class action lawsuits have had a harder time getting to trial or settlement as dismissals of such cases increased. However, the final tally for 2014 is still in question.

“Filings have been dismissed at a rate of 59 percent and 58 percent in cohort years 2010 and 2011, respectively,” the report determined. “Dismissal rates for these years may edge higher as pending cases are resolved.”

The study found that from 1996 to 2013, 49% of securities class action lawsuits have ended in settlements, 41% has been dismissed and 9% are ongoing. Overall, less than one out of 100 cases ended in a jury verdict one way or another. However, the rate of dismissals began rising considerably since 2008, when it passed 51% for the first time since at least 1996 and may be earlier. The number of cases settled dropped to 11% by 2012 and low single digits in 2013 and 2014, but much of that drop is because many of those lawsuits are ongoing.