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NERA Year-End Report for 2019: More complaints, bigger backlog of unresolved cases

2019 Saw Third Year of Increased Complaint Filings, Bigger Backlog of Unresolved Cases



NERA Economic 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?

The 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.

Dismissal 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 hypothetically rise.)

Meanwhile 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 in. 

This 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.

Whether 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.


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