Less Volatile Markets Lead to Decline in Class Action Settlement Values

A Cornerstone Research report on securities class actions in 2014 pointed out a stark decline in the value of settlements. Settlements fell 78 percent to $1.07 billion in 2014 from $4.85 billion in 2013. This represents an 84 percent drop below the prior nine-year average.

The biggest contributing factors cited by the legal consulting firm are a dearth of large cases, usually involving pension funds as lead plaintiffs, and a decline in volatility of markets:

“The level of ‘estimated damages’ depends on several factors, including the length of the associated class periods and the stock market volatility during the relevant time period. In 2014, on average, the class period length was not substantially different than prior years. However, the volatility of the stock market in recent years has been declining when compared to earlier years, which may have contributed to the smaller average ‘estimated damages’ for cases settled in 2014.”

Naturally, without a decline in values of stocks, there are likely no damages and no loss causation to support securities claims. However, volatility in major market indices has risen since the start of 2015, suggesting that more cases may be initiated resulting in an uptick in settlements down the road. The average time to settlement for cases resolved in 2014 was three years.

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