Settlement amounts from U.S. securities class actions dropped in 2014, according to a new report from NERA Economic Consulting.
The firm reports that the median settlement amount in 2014 was US$6.5 million, which is its lowest level in 10 years. Aggregate settlements were US$2.6 billion in 2014, much less than the US$6.6 billion approved in 2013.
NERA says that the decrease in settlement amounts was more dramatic after a much-anticipated Supreme Court decision, which addressed the presumption of reliance at class certification, and ruled that "defendants must be afforded an opportunity before class certification to defeat the presumption through evidence that an alleged misrepresentation did not actually affect the market price of the stock."
Additionally, filings of new securities class actions of the type addressed by the court increased by 14% after the decision was issued, it says. However, for 2014 as a whole, the number of filings remained flat compared to recent years.
The report also notes that another pending Supreme Court decision, which is expected in the first half of 2015, could tighten or loosen the pleading standards for these types of cases.
"In 2014, securities class actions settled for less compared to recent experience," said Dr. Renzo Comolli, senior consultant at NERA and co-author of the report. "But now the Supreme Court in Omnicare is pondering whether to tighten or loosen pleading standards for cases that often center on IPOs. The Supreme Court decision, expected to come on the heels of the largest IPO wave since the dot-com era, could make for an interesting 2015."
Additionally, the number of settlements was low in 2014, NERA reports. For the third consecutive year, the number of settlements was at or close to the all-time low, it says. "A new analysis of the time to resolution shows that, on average, 59% of the cases resolve (whether through settlement or dismissal) within three years from first filing. But the number of cases pending in court appears to have been increasing over the last three years, suggesting a possible slowdown of resolutions," it says.