Consulting has released its yearly report on the state of securities class actions.
The most interesting takeaway for investors is how remarkably stable the world
of financial litigations remains despite all the changing variables.
That may sound
contradictory, but consider: for the past four years new federal class action
complaints have spiked from an historical average of about 225 new cases each
year to over 400. (Both 2018 and '19, according to NERA's count, had 433 new
complaints.) Meanwhile, the number of settlements continues to hover around 100
per year and more. What's going on here?
trend, as we have mentioned before, is thanks to an increase in filings by
smaller law firms against smaller corporations. In their quest for lead
plaintiff representation, upstart law firms trying to break into the securities
class action space are taking cases that bigger law firms have traditionally
ignored. Many of these cases are weaker-- some even say frivolous-- and are
therefore dismissed faster than they were before.
rates bear this out: for the first half of the last decade, settlement rates
for securities class actions were over 51%, reaching 58% in both 2014 and 15.
In 2016 the spike in new class actions leapt from 232 in the previous year to
299. As a result of this flood of new cases, some on dubious legal ground, the
settlement rate fell first to 45% in 2016, then to 43% in '17, and then 31% for
the past two years. (It's important to note though that these numbers only account
for resolved cases. There is a
large backlog of unresolved cases, so the settlement rates overall could
the settlements for the past decade has remained remarkably stable, between 100
to 130 new settlements each year. This may be disappointing for investors who
would hope a spike in new cases means a spike in recovery opportunities, but
that is a glass-half-empty view. In reality, many of these new
complaints--complaints, as noted, that other firms would have traditionally
ignored-- do wind up settling. And so, despite the lower settlement rates,
there are still just as many of them each year for investors to participate
means that the recovery opportunities not only persist, but persist in
remarkably stable numbers despite the fluctuations in both the stock market and
the legal world.
you are a busy investor who wants to recoup losses, and or a money manager who
wants to keep up with class actions for your firm, CCC is the smart choice for
you. As this latest year-end round up shows once again: class actions are not
only here to stay, they have been, and will be, a consistent and persistent
recovery source for those who can keep up the flow.