Report reveals securities class action settlements face decline in 2023

The number of settlements dropped 21 percent from the 15-year high recorded in 2022

Report reveals securities class action settlements face decline in 2023

The recent report from the US consulting firm Cornerstone Research revealed a significant decline in the number of securities class action settlements in 2023, with figures dropping 21 percent from the 15-year high recorded in 2022.

The "Securities Class Action Settlements—2023 Review and Analysis" report shows that 2023 the securities class action settlements fell to 83, marking a notable reduction from the 105 settlements observed in the previous year. Despite the decrease in settlement cases, the median settlement amount has surged to its highest level since 2010, indicating a substantial increase in the agreed-upon value.

According to the report, the total monetary value settled remained relatively stable at approximately $3.9 billion, only slightly down from $4.0 billion in 2022. Noteworthy is the median settlement amount, which has escalated to $15.0 million, an 11 percent increase from the prior year and the highest recorded since 2010.

“The fact that cases are taking longer to settle explains, in part, the drop in the number of securities class action settlements in 2023,” said Dr. Laarni T. Bulan, a report coauthor and principal at Cornerstone Research. “Disruptions associated with the COVID-19 pandemic may be contributing to this, but it is also worth noting that cases are reaching more advanced stages prior to resolution, including a smaller proportion of cases settled before a ruling on class certification compared to prior years.”

The report further highlighted that the median duration from filing to settlement hearing in 2023 stretched to 3.7 years, a peak only matched once since enacting the Private Securities Litigation Reform Act in 1995. Additionally, the median total assets of issuer defendants in 2023 settlements involving Rule 10b-5 claims soared to an unprecedented $3.1 billion, reflecting more than a 150 percent increase over the median of the previous nine years and setting a new record for post-Reform Act settlement years.

This increase in defendant assets, serving as a proxy for the capacity to fund settlements, has been identified as a significant factor contributing to the rise in settlement amounts in 2023. Despite a 16 percent decrease in "simplified tiered damages" from the record high in 2022, these damages remained significantly elevated compared to the past nine years.

Key trends highlighted in the report include a 19 percent increase in the size of issuer defendant firms involved in 2023 settlements, as measured by median total assets, and a record number of nine mega settlements (equal to or greater than $100 million) accounting for nearly two-thirds of the total settlement dollars in 2023. Additionally, the median settlement amount for cases with only Securities Act of 1933 claims witnessed an 85 percent increase from 2022, reaching $13.5 million.

 

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