Securities Class Action Settlements Hit 15-Year High in 2022

Businessman staring at an image painted on a wall of a large fish about to eat a smaller fish

Securities class action lawyers appear to have had a banner year in 2022, according to a new report.

Data from economic and financial consulting firm Cornerstone Research indicates that settlements in securities class action cases hit a 15-year high, up more than 20% from 2021. At the same time, settling hit defendants harder in their wallets:

  • The total value of securities class action settlements basically doubled from the prior year to $3.8 billion.
  • The median settlement amount hit $13 million in 2022, an increase of 46% year over year.
  • The average settlement amount rose 63% to $36.2 million last year.

Additionally, the legal sharks were going after bigger fish in their suits, according to the data. The research showed that defendants involved in 2022 settlements had median total assets of roughly twice the size of defendants that settled the previous year.

Cornerstone Research data suggests settlements in 2022 broke with a historical trend in which cases with accompanying actions by the Securities and Exchange Commission tend to produce substantially larger settlements. In 2022, the median settlement amount in lawsuits involving a corresponding SEC action was less than 5% above settlements in cases without one. Conversely, the median settlement amount in cases with corresponding SEC actions more than doubled the median settlement from cases without a corresponding action in 2021.

Notably, the report’s data also seems to indicate that the rise in securities class action cases and settlements had nothing to do with enforcement activity on the part of the SEC under previous chair Jay Clayton, an appointee of the Trump administration. Nine percent of the 105 settlements reached last year had an accompanying SEC enforcement action. From 2013 to 2021, an average of 24% of settled cases involved a corresponding SEC action or criminal charge.

Before anyone starts jumping to conclusions about what the 2022 results portend for securities class action lawsuits in the coming years, keep in mind that about 70% of settlements reached last year came from cases filed between 2018 and 2020. That three-year period saw a surge in filings that subsequently tailed off beginning in 2021. It stands to reason that settlements will decline as the older cases are closed.

On the other hand, Cornerstone Research pointed out in the report that SEC enforcement actions tend to grow following the installment of a new SEC chair. Gary Gensler got the job in 2021, so it stands to reason that we can expect to see a higher percentage of settlements with corresponding SEC actions in the near future.

Lastly, the report mentioned that more than a quarter of all securities class action filings from 2020 to 2022 were related in some way to special purpose acquisition companies, Covid-19 or cryptocurrency. For crypto and SPACs, that sounds like more trouble on the horizon for the two beleaguered sectors.

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