Securities Class Action Settlements Held Steady in 2020 Despite Pandemic

Securities class action settlements for 2020 generally kept pace with recent years despite the pandemic, according to a recent report from Cornerstone Research.

The report, “Securities Class Action Settlements—2020 Review and Analysis,” found that courts approved 77 settlements totaling $4.2 billion in 2020 compared to 74 settlements totaling $2.1 billion the previous year. There were six mega settlements (equal to or greater than $100 million) in 2020, ranging from $149 million to $1.2 billion. However, excluding settlements over $1 billion, total settlement values declined by 4 percent in 2020 over 2019, the report said.

The median settlement value of $10.1 million in 2020 was down 13 percent from 2019 (adjusted for inflation) but was still 19 percent higher than the prior nine-year median. The average settlement doubled from $27.8 million in 2019 to $54.5 million in 2020 but was only 15 percent higher than the prior nine-year average.

“Any disruption in settlement rates as a result of the COVID-19 pandemic appears to have been temporary, with the overall number of settlements for 2020 in line with recent years. It will likely be at least a couple of years before we learn whether COVID-19-related allegations have had an impact on other settlement trends,” said Laura E. Simmons, a Cornerstone Research senior adviser and co-author of the report.

Among the report’s other highlights:

• More than 30 percent of cases in 2020 settled for amounts less than $5 million. Meanwhile, 45 percent of cases settled for between $5 million and $25 million in 2020, which was a return to pre-2019 levels.
• Measured by median total assets, the size of issuer defendant firms involved in settled cases in 2020 increased by 34 percent over 2019 and by more than 125 percent over the previous nine years.
• The proportion of settled cases alleging GAAP violations in 2020 was 42 percent, among the lowest of all post-Reform Act years.
• The frequency of settled cases involving a corresponding Securities and Exchange Commission action fell 32 percent from the prior year.
• 55 percent of settled cases involved an accompanying derivative action, the second-highest rate over the last 10 years.
• Median “simplified tiered damages” (a measure of potential shareholder losses) were $326 million in 2020, the second highest in the last decade.

Source: Cornerstone Research