Recent Trends in Shareholder Class Actions

Transcription

1 Recent Trends in Shareholder Class Actions Data Through March 31, 2008 Stephanie Plancich, Ph.D Senior Consultant CAS Spring Meeting, Quebec City June 17, 2008

2 Types of Shareholder Securities Litigation Class Action Directors & Officers Accountant Shareholders Employees Company Underwriter Derivative Suit ERISA Claim Trustee 1

3 Trends in Filings

4 Federal Filings January 1, 1991 March 31, Number of Federal Filings Average Standard Filings: Q '08 Standard Filings Other Cases Options Backdating Cases Subprime Cases Notes: Other Cases include IPO laddering, analyst and mutual fund market timing cases. Subprime/Auction Rate Securities Cases 3

5 Standard, Options Backdating, Subprime and Subprime/Auction Rate Securities Federal Filings: Six Month Intervals 140 January 1, 2002 March 31, 2008 Number of Federal Filings H 2H 1H 2H 1H 2H 1H 2H 1H 2H 1H 2H Q 2008 Standard Filings Options Backdating Cases Subprime Cases Subprime/Auction Rate Securities Cases 4

6 Federal Filings By Circuit January 1, 2005 March 31, Number of Federal Filings D.C. 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th 2005 Standard Filings 2006 Standard Filings 2007 Standard Filings 1Q '08 Standard Filings Options Backdating Cases Subprime and Subprime/Auction Rate Securities Cases 5

7 1Q 2008 Federal Filings By Circuit Number of Federal Filings D.C. 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Standard Filings Options Backdating Cases Subprime Cases Subprime/Auction Rate Securities Cases 6

8 2007 Federal Filings By Circuit Number of Federal Filings D.C. 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Standard Filings Options Backdating Cases Subprime Cases 7

9 Federal Subprime Cases Filed By Circuit Number of Federal Subprime and Auction Rate Securities Cases D.C. 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Subprime Cases Filed In 2007 Subprime Cases Filed As of March 31, 2008 Auction Rate Securities Cases Filed As of March 31,

10 Second Circuit Federal Filings January 1, 1996 March 31, 2008 Number of Second Circuit Federal Filings Average Standard Filings: Q '08 22 Standard Filings Other Cases Options Backdating Cases Subprime Cases Notes: Other Cases include IPO laddering, analyst and mutual fund market timing cases. Subprime/Auction Rate Securities Cases 9

11 Ninth Circuit Federal Filings January 1, 1996 March 31, Number of Ninth Circuit Federal Filings Average Standard Filings: Q '08 Standard Filings Other Cases Options Backdating Cases Subprime Cases Notes: Other Cases include analyst and mutual fund market timing cases. 10

12 Federal Filings Allegations By Claim Type January 1, 2005 March 31, 2008 Other Customer/ Vendor Issues Merger Integration Issues 8% 3% 11% 30% Accounting Cases 20% Product/ Operational Defects 4% 24% Industry-Related Allegations Company-Specific Earnings Guidance 11

13 Federal Filings with Accounting Claims 70% January 1, 2005 March 31, % 60% Percent of Filings with Claim 50% 40% 30% 20% 48% 35% 46% 10% 0% Q '08 12

14 Trends in Dismissals

15 Dismissal Rates by Circuit Within Two Years of Filings 45% 40% Filing Date March 31, 2001 March 31, % 35% 30% 25% 25.5% 25.5% 27.0% 23.9% 23.2% 20% 19.4% 18.1% 19.0% 15% 10% 5% 11.3% 6.1% 0% 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th Federal Circuits Notes: Because it is not uncommon for judges to take up to two years from the filing date to rule on motions to dismiss, it would be premature to evaluate dismissal rates of cases after March 31,

16 Status of 235 Federal Securities Class Actions Filed in 2000 Partially Settled 0.4% Other 8.1% 31.5% Dismissed 60.0% Settled 15

17 Out of the 64 Subprime Federal Shareholder Class Actions Filed Through March 31, 2008, Two Have Been Dismissed with Leave to Amend and Three Have Been Voluntarily Dismissed Company Name Original Complaint Filing Date Class Period Start End Dismissal Date 1 Amended Complaint Filing Date Dismissal Date 2 Deadline for Filing Amended Complaint Federal Circuit Case Status Dismissed with Leave to Amend 1 New Century 02/08/07 05/05/05 03/13/07 01/31/08 03/24/08 9 Active/ Tent Financial Corp. 1 Dismissed 2 IndyMac Bancorp, Inc. 03/12/07 01/26/06 01/25/07 11/29/07 01/18/08 05/08/08 06/06/08 9 Active/ Tent Dismissed Voluntarily Dismissed 1 Fremont General Corporation 2 BankAtlantic Bancorp, Inc. 06/15/07 04/28/05 02/27/07 08/15/08 9 Voluntarily Dismissed 11/30/07 11/09/05 10/25/07 01/25/08 2 Voluntarily Dismissed 3 Lehman Brothers 02/22/08 09/13/06 07/30/07 03/04/08 7 Holdings, Inc. 2 Voluntarily Dismissed Notes: The 64 subprime shareholder class actions include 8 auction rate securities class actions filed in The docket for the case indicates that New Century was terminated as a defendant on 09/14/07 after filing for bankruptcy on 04/02/07. According to the court docket for the case, on 06/02/08 a motion to dismiss the second amended complaint was filed and a hearing was set for 09/08/08. 2 Lehman Brothers Holdings is not named a defendant in the class action. The defendant in this case is Christopher M. O Meara who served as the Company s Chief Financial Officer. 16

18 Trends in Settlements

19 $35 30 Average Settlements, Excluding Settlements Over $1 Billion January 1, 1996 March 31, 2008 Average: $23.7 MM $31.1 Average Settlements ($MM) Average: $11.6 MM $8.5 $8.8 $10.7 $11.1 $15.7 $13.9 $23.8 $21.7 $19.7 $24.7 $22.8 $ Q '08 Notes: Average without final settlements over $1 billion: the 2000 Cendant, the 2005 WorldCom, the 2006 Royal Ahold, AOL Time Warner, two Nortel Networks, and the 2008 McKesson HBOC Inc. 18

20 $90 Including Settlements Over $1 Billion Pushes Average Settlements Even Higher January 1, 1996 March 31, 2008 Average Settlements ($MM) Average Excluding Settlements Over $1 B: $11.6 MM $8.5 $8.8 Average Including Settlements Over $1 B: $16.3 MM $10.7 $11.1 $40.3 $15.7 $13.9 Average Including Settlements Over $1 B: $40.3 MM Average Excluding Settlements Over $1 B: $23.7 MM $23.8 $21.7 $19.7 $73.0 $75.7 $24.7 $22.8 $31.1 $55.3 $ Q '08 Notes: Averages without final settlements over $1 billion exclude the 2000 Cendant, the 2005 WorldCom, the 2006 Royal Ahold, AOL Time Warner, two Nortel Networks, and the 2008 McKesson HBOC Inc. settlements. 19

21 Top 10 Shareholder Class-Action Settlements (As of March 31, 2008) Rank Company Year Settlement Value ($MM) Enron Corp $7,231* WorldCom Inc $6,156 Cendant Corp $3,561 Tyco International, Ltd $3,200 AOL Time Warner Inc $2,650 Nortel Networks (I) 2006 $1,143 Royal Ahold, NV 2006 $1,100 Nortel Networks (II) 2006 $1,074 McKesson HBOC Inc. Xerox Corp $1,043* 2008 $ 750 * Settlement amounts rounded. 1 Indicates partial settlement including only some defendants. 2 Indicates tentative settlement. 3 The settlement value incorporates a $374 million settlement in the Cendant PRIDES cases. 20

22 Incidence of Mega-Settlements By Year 9% January 1, 1991 March 31, % 8.1% 7% 6.3% 6.8% 6% 5% 4% 4.2% 5.2% 3.5% 4.3% 3% 2% 1% 1.1% 1.7% 1.5% 2.1% 1.5% 1.7% 2.0% 2.8% 2.3% 0% Q '08 Notes: We define mega-settlements to be those exceeding $100 million. 21

23 Median Settlement By Settlement Year $10 January 1, 1996 March 31, 2008 $9.5 9 Median Settlement ($MM) $3.8 Median: $4.7MM $4.5 $5.5 $4.4 $5.0 $5.0 $6.0 $5.6 Median: $6.7 MM $5.2 $7.0 $7.0 $ Q '08 22

24 Median Ratio of Settlement to Investor Loss Median Investor Losses ($MM) $ % $60 4.8% $96 5.9% 5.8% $62 $63 6.1% January 1, 1991 March 31, 2008 $85 7.2% $66 $94 5.5% 5.1% $119 $ %. 4.0% $162 $176 $296 $215 $329 $333 $398 $317 $309 0% Q'08 3.4% 2.9% 2.9% 2.3% 3.1% 2.1% 2.3% Median Investor Losses ($MM) Median Ratio of Settlement to Investor Losses (%) 3.0% 8% 7% 6% 5% 4% 3% 2% 1% Median Ratio of Settlement to Investor Losses (%) 23

25 Expected Settlements Rise More Slowly than Investor Losses 25% Settlement As a Percent of Investor Losses 20% 15% 10% 5% 0% $0 $40 $80 $120 $160 $200 $240 $280 $320 $360 $400 $440 $480 $520 $560 $600 Investor Losses ($MM) 24

26 Expected Settlement Rises Slower than Investor Losses $18 $16 Predicted Settlement ($MM) $14 $12 $10 $8 $6 $4 All variables other than Investor Losses held constant at mean $2 $0 $0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 Investor Losses ($BB) 25

27 Expected Settlement vs. Investor Losses: A Close-Up $14 $12 Predicted Settlement ($MM) $10 $8 $6 $4 5.1% 2.5% 1.1% $2 $0 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 $1,100 Investor Losses ($MM) 26

28 Median Investor Losses By Filing Year and Settlement Year $600 $542 Median Investor Losses ($MM) $333 $339 $398 $265 $336 $317 $ Q '08 Investor Losses: Settlement Year Filing Year 27

29 What Factors Will Drive Future Settlement Amounts? Common Stock Damages Proxy Investor losses vs. S&P 500 Number of Other Securities Debt, options, preferred Institutional Lead Plaintiff IPO Defendants Pockets Market cap the day after Issuer bankrupt or price at settlement < $1.00 Accountant codefendant Nature of Allegations Accounting Strength of Allegations Admitted irregularities Official action 28

30 Contact Us Stephanie Plancich Senior Consultant NERA 1166 Avenue of the Americas New York, NY stephanie.plancich@nera.com Copyright 2008 National Economic Research Associates, Inc. All rights reserved.