[ by Melanie Gretchen ]

U.S. courts experienced a drop in the number of securities class action settlements approved this year, in a 14-year low.  On the other hand, the total payout surged amid the surfacing of lawsuits arising from the financial crisis.  [C-I Takeaway: Don't go to court unless you can't afford not to.]

In 2012, 53 settlement received court approval, compared to 65 a year earlier, according to the study released Wednesday by Stanford Law School and Cornerstone Research in Boston.  For context, the average was 92 settlements a year over the last 10 decade.  For 2012, the average payout was $54.7 million, almost 50% above the $36.8 million average from 1996 to 2011, excluding settlements of about $6.19 billion for WorldCom Inc in 2005, $7.24 billion for Enron Corp in 2006, and $3.2 billion for Tyco International Ltd in 2007.

In its study, Stanford and Cornerstone attributed the drop in settlements last year to changing times.  New lawsuits seeking class action status filed in 2009 and 2010, which usually take 3 or 4 years to resolve, have dropped.  However, those hoping for a turnaround will be pleased to know that lawsuits get bigger, prompting the term "mega" lawsuit.

The average "estimated damages" alleged in cases that won court approval in 2012 was $6.0 billion – almost 3 times the level in each of the previous 4 years, and the highest since 2006, when the average was $8.7 billion.  Case in point: AIG's $822.5 million settlement with investors over alleged fraudulent conduct from 1999 to 2005.  Also on the horizon is the rise of the role of public pension funds, comprising 49% of the lead plaintiffs in cases that settled in 2012, compared to 40% a year earlier and 6% in 2003.

"A large portion of recent settlement dollars was from filings associated with some of the largest declines in market capitalization during the past 10 years. We may continue to see settlement totals influenced by a small group of similar cases." -- Joseph Grundfest, a Stanford law professor.

For further details, go to:   [Reuters, 3/20/13].

To contact Melanie Gretchen: melanie@compliance-insights.com.