Notable findings in the NERA Report include:
(1) Securities class action filings in the first half of 2007 increased 47% from the second half of 2006, indicating that the prior trend of decreasing securities class action filings may be changing direction.
(2) Historically, the percentage of class action filings in federal courts against foreign companies listed on U.S. exchanges has been lower than the rate of filing against foreign companies listed on non-U.S. exchanges. However, in recent years this gap has narrowed.
(3) Dismissal rates for securities class actions increased from 38.2% in 2004-2006 to 39.1% in 2005-2007 — perhaps as a result of the U.S. Supreme Court’s decision in Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005) (holding that plaintiffs must show a link between alleged illegal activity and a drop in stock price to survive a motion to dismiss).
(4) Mega-Settlements (settlements over $100 million) in 2007 continue to drive up settlement averages. Eight of the top ten securities class action settlements of all time have all resolved in 2006 and 2007. For the first time, each of the top ten securities class action settlements exceeded $1 billion.
(5) When compared to cases filed in 2005, cases filed in 2007 appear to have relatively lower investor losses, and only a small percentage of cases contain accounting allegations. Assuming all other variables remain constant, these factors may lead to lower settlement values in the future.
While investor losses in the stock market have decreased over the past few years, it appears that the trend of increasingly high securities class action settlements has continued into 2007. Furthermore, while securities class action filings are still significantly lower than historical averages, D&O insurers may be able to point to the NERA Report as an indication that the perceived trend of decreasing securities class action filings that contributed to the soft underwriting market is slowly reversing. Only time will tell how these trends will play out over the longer term. Stay tuned.
