On August 21, the Wall Street Journal reported on a trend we’ve been seeing at ground level here at Chicago Clearing: the surge in new securities class action filings in 2017. Filings are at the highest since at least 1996. According to Cornerstone Research, 226 new securities class actions have been filed in the United States in the first six months of the year. That is a 135% increase on the historical average of 96 cases per six-month period.
What’s going on?
First, attorneys have brought more merger and acquisitions suits to federal court in order to avoid, in the words of Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, “the experienced, skeptical judiciary in Delaware.” In all of 2014, there were 13 federal M&A suits. In all of 2015, there were 17. The move-to-federal-court strategy begins in 2016, with suddenly 85 such cases.
Then, in just the first half of 2017, there were 95.
Second, many of the new cases might not have been filed at all a few years ago. According to the Journal, “Industry watchers say the rise is being driven by enterprising plaintiffs’ firms bringing more, arguably weaker cases under the perceived strategy that companies will settle early to make a case go away.”
Again, CCC can point to evidence of this at the ground level. The surge in class action filings began around two years ago, and the settlements resulting from this uptick reflect, perhaps, the “make a case go away” settlement. In 2015 there were 112 settlments, a total pool of $4.7 billion, and an average of $41.9 million. In 2016 there were 122 settlements, a total pool of $6.9 billion, and an average of $56 million. This year we have seen 105 settlements so far, a total pool of $2.9 billion, and an average of $28.37 million.
There are several reasons this settlement average could have dipped—fewer “mega” settlements, the chief among them. And besides, it’s only August; time will tell what the 2017 average will be. Nevertheless, the numbers already point toward increased numbers of settlements with smaller pools, and it is a trend we expect to stay for a while.
And that is an important point too: an increased number of cases means an increased number of companies exposed to class action lawsuits every year. The Journal notes that we are on pace to see 9.5% of the 4,411 US exchange-listed companies get hit with a class action suit. (Last year was 5.6%, and the historical average is even lower.)
Smaller settlements, it is important to note, do not necessarily mean little money for every investor. We recently filed claims for a registered investment adviser in a relatively "small" $5.6 million settlement. After attorney’s fees and administration costs, the pool available for all claimants was around $4 million. Our client recovered nearly $450,000, or roughly 11% of the entire available fund. In another $1.5 million settlement, a hedge fund client of ours recovered over 50% of the available fund.
More cases means not just more chances to recover funds. It also means more risk to miss out on settlements. Indeed, the hedge fund mentioned in the previous example almost missed their chance, and turned to CCC to file a late claim.
The only bad settlement is the settlement you miss. With new cases and new settlements coming faster than ever, the risk of missing one only increases. So call CCC today and keep up with the surge in class actions.