Securities Class Action Settlements Stayed Near Record Lows in 2013

A new report indicates that there was a 10% increase in the number of federal securities class actions filed last year, but the number of companies who chose to settle investor complaints out of courts fell to near record lows.  

NERA Economic Consulting has published a full year review of securities class action litigation for 2013 (PDF). The report details increases in securities class action lawsuits filed, and suggests that a few large settlements drove the average settlement amount up for 2013, even though more financial firms chose to battle it out in the courtroom instead of making out-of-court deals.

“Settlement activity continued to proceed at a very slow pace after the 2012 record low. But the 2013 settlements include some large ones,” according to the report. “In summary, 2013 was a year in which large settlements got larger and small settlements got smaller.”

There were 234 securities class action lawsuits filed in federal court in 2013, a 10% increase over the prior year. According to the report, 165 of those were securities fraud cases, representing a 155 increase over the number of securities fraud cases filed in 2012.

However, investors “only” claimed to have lost $166 billion in federally filed lawsuits in 2013, which is down from $252 billion in losses claimed in 2012. The report indicates that there were more small cases that settled for smaller amounts. However, financial institutions and other defendants were less likely to agree to reach settlements overall, reflecting an ongoing trend.

“Only 100 securities class actions settled in 2013, a level very close to the record low of the previous year,” according to the report. “In 2012, 94 settlements were reached, the lowest level since at least 1996.”

Overall, shareholder settlements totaled about $6.5 billion last year, almost twice that of 2012’s total. However, NERA notes that a few blockbuster cases were the drivers of that number, and found that smaller, more common, cases were settling for less.

The average settlement in 2013 was $68 million, but NERA points out that number is deceptive because of a a $2.4 billion mega-settlement involving Bank of America Merrill Lynch reached in 2012 but approved in 2013. The analysis noted that the median settlement amount was more reflective of what happened last year.

The median settlement amount was $9.1 million in 2013; a 26% decrease compared to the previous year.

NERA’s report does not include cases filed in state court or resolved through arbitration claims through the Financial Industry Regulatory Authority (FINRA).