Study: Higher Settlements When Pension Funds Lead

June 16, 2010

When pension funds lead securities lawsuits, settlement sizes increase by a statistically significant amount. That’s one of the findings of a recent report by Cornerstone Research, which analyzed 2009 class action settlements.

According to the study, institutional investors served as lead plaintiff in nearly 65 percent of last year’s settlements, which is the highest percentage to date since the passage of the Private Securities Litigation Reform Act of 1995. Cases led by public pensions settled for “significantly higher” amounts.

Last year, the median settlement for cases with public pensions as lead was $20 million, compared with just $5.1 million for non-public pension leads.

Significantly, the analysis controlled for the fact that public pension funds are more sophisticated and tend to participate in stronger cases.

“A statistical analysis of settlement amounts and participation of public pension plans as lead plaintiff shows that even when controlling for estimated ‘plaintiff-style’ damages (case size) and other factors that affect settlement amounts (such as the nature of the allegations), the presence of a public pension plan as lead plaintiff is still associated with a statistically significant increase in settlement size,” the report said.

Overall, securities class action settlements totaled $3.8 billion last year, a 35 percent increase over 2008. A total of 103 settlements (averaging $37 million) were approved in 2009, compared to 97 (averaging $28 million) for the prior year.