Securities Class Action Settlements Decline: Reversal Expected

An absence of approved settlements in excess of $1 billion in 2008 contributed to a more than 50 percent decline in the average settlement value of federal securities class actions to $31.2 million in 2008, from $62.7 million in 2007. According to an annual report by Stanford Law School and Cornerstone Research, there have been nine settlements in excess of $1 billion over the previous 10 years and the third largest securities class action settlement in history (Tyco International) was reported in 2007. The report found that the total number of settlements also declined by a more modest 10 percent to 99 in 2008, from 110 in 2007. However, future damages are expected to rise as increased litigation activity arising from the financial crisis works its way through the judicial system. A key takeaway from the report is the discussion on settlements of pending actions against TARP recipients. As it explains, these will raise novel public policy issues: “Taxpayer dollars will, one way or another, fund these settlements. This simple fact could set off a debate about whether taxpayers should pay for these settlements, and about the effectiveness of the class action litigation mechanism altogether.† An interesting point.  

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