TheCorporateCounsel.net

Cornerstone Research recently published its latest report, Securities Class Action Settlements—2024 Review & Analysis. While securities class action settlements generally “continued at a pace typical of recent years,” median settlement amounts for securities class actions declined a bit from the 13-year high in 2023. The report identifies several potential reasons for this.

– Institutional investors served as lead plaintiff less frequently in 2024 settlements, with their involvement reaching the lowest level in 10 years. An institutional investor serving as lead or co-plaintiff has historically been associated with cases with larger settlements and higher plaintiff-style damages. Lower institutional investor involvement is consistent with lower median plaintiff-style damages.

– Issuer defendants had significantly smaller median total assets than in 2023, marking the lowest level observed since 2018. Additionally, a greater percentage of 2024 settlements involved issuers that had been delisted from a major exchange and/or had declared bankruptcy. Issuer defendant firm assets and issuer distress both have potential implications for the ability to fund a settlement, which is consistent with the smaller settlements in 2024.

– This was also the first year in which a large number of settled cases were related to SPACs. SPAC cases tended to settle for smaller amounts compared to non-SPAC cases. Commentators have suggested that D&O insurance coverage for SPAC cases was likely limited, which may have played a role in the lower SPAC-related settlement values.

The authors expect the proportion of SPAC-related settlements to continue for a few years. They also believe that the number of settled cases will continue at a similar pace, given recent filing trends, and settlement amounts may remain at relatively high levels, based on the data on potential investor losses reported by Cornerstone Research in its Securities Class Action Filings — 2024 Year in Review.

– Meredith Ervine