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EXHIBIT 4
8:10-cv-00199-JFB-TDT Doc # 120-4 Filed: 09/25/12 Page 1 of 44 - Page ID # 1911
Recent Trends in Securities Class Action Litigation: 2012 Mid-Year ReviewSettlements bigger, but fewer
By Dr. Renzo Comolli, Dr. Ron Miller, Dr. John Montgomery, and Svetlana Starykh
24 July 2012
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The pace of “standard” filings and the total value of potential claims are rising compared with the last three years.
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www.nera.com 1
Recent Trends in Securities Class Action Litigation: 2012 Mid-Year Review Settlements bigger, but fewer
By Dr. Renzo Comolli, Dr. Ron Miller, Dr. John Montgomery, and Svetlana Starykh
24 July 2012
Mid-2012 Highlights in Filings
• Filingsontracktobeashighorhigherthaninanyofthelastthreeyears
• Mergerobjectionsuitscontinuetobealargeproportionoffilings
• Nonewfilingswithaccountingcodefendants
New Analysis of Motions
• Ofthecasesthatsettled,90%hadamotiontodismissfiledand42%hadmotionforclasscertificationfiled
• Settlementsamountsdependonthelitigationstageatwhichsettlementisreached
Mid-2012 Highlights in Settlements
• Settlementpaceslowingdownmarkedly
• Averagesettlementamountsreboundtolevelsclosetotheall-timehigh
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Introduction and Summary1
SecuritiesclassactionsfiledinFederalcourthavecontinuedtobefiledattheirhistoricalpacesofar
in2012,buttheircompositionhaschangedsignificantly.Lastyear,awaveoffilingsagainstChinese
companies,ofteninvolvingreversemergers,madethenews.Thisyear,thosecaseshavegreatly
decreasedinnumber.Mergerobjectioncasescontinuetobeamajorportionoftotalfilings,astheyhave
since 2010.
Thetargetsoflitigationhavebeenchanging.Financialsectorfirms’shareoffilingsin2012issmallerthan
ithasbeensince2005whilefilingsinthetechnologyandhealthcaresectorshaverisen.Accounting
firmshadfrequentlybeennamedascodefendantsinsecuritiesclassactionsinthepastandhadfigured
prominentlyinsomeofthelargestsettlements.However,since2010therehavebeenrelativelyfew
accountingfirmsnamedandsofarthisyeartherehavebeennoneatall.
Whilefilingshavecontinuedattheirtypicalrate,settlementshavenotkeptpace.Therateofsettlements
thisyearisontracktomake2012theslowestyearforsettlementactivitysince1999andmanyofthe
settlementsthathavebeenreacheddonotincludemonetarycompensationforinvestors.
Althoughthenumberofcasessettledthisyearislow,thecasesthathavesettledarerelativelybig
ones.Theaveragesettlementvalueismorethandoublelastyear’slevelandhigherthantherecent
historical average.
Wealsoreportnewly-compiledstatisticsonthesettlementvaluebystatusofthemotionsfiledinthose
cases.Amongotherthings,wefindthatmostsettlementsoccurafteramotiontodismisshasbeenfiled
butbeforeamotionforclasscertificationhasbeendecided.
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Figure 1. Federal Filings January 1996 – June 2012
133
202
276240 236
200
276238 254
188
132
196
244208
232 224
116
311
3
0
50
100
150
200
250
300
350
400
450
500
550
Nu
mb
er o
f Fed
eral
Fili
ng
s
Cases, Excluding IPO Laddering
IPO Laddering Cases
Projected 2H 2012
1996 - 2011 Average Cases, Excluding IPO Laddering: 217
232
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Trends in Filings2
Rate of Filings Federalfilingsofsecuritiesclassactionsarekeepingupwiththeaveragepacesincethepassageofthe
PrivateSecuritiesLitigationReformAct(PSLRA)in1995.Inthefirsthalfofthisyear,116suchactions
werefiled.Atthispace,therewillbe232classactionsfiledin2012asawhole;forcomparison,on
average,217classactionswerefiledannually,between1996and2011.3Althoughthenumberofclass
actionssince1996hasfluctuatedfromyeartoyear,thelonger-termaveragehasremainedsubstantially
stableovertime.SeeFigure1.
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Figure 2. Federal Filings and Number of Companies Listed in United States January 1996 – June 2012
133
202
276240 236
200
276238 254
188
132
196
244208
232 224
116
8,884
7,289
6,757
8,7838,448
8,2007,994
6,154 6,097 6,029 6,005 5,936
5,401 5,262 5,118 5,001 4,992
0
50
100
150
200
250
300
350
400
450
500
550
Nu
mb
er o
f Fed
eral
Fili
ng
s
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
Nu
mb
er o
f Co
mp
anie
s Li
sted
in U
S
Cases, Excluding IPO Laddering
Projected 2H 2012
Listings
Note: Number of compamies listed in US is from Meridian Securities Markets.
232
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Incontrast,thenumberofcompanieslistedintheUShasdecreasedmarkedly,byabout43%since1996.
Thus,theaveragecompanylistedintheUSissignificantlymorelikelytobethetargetofasecuritiesclass
actionnowthanitwasin1996.SeeFigure2.
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Filings by Type Filingsforthefirsthalfof2012included26mergerobjectioncasesand83casesallegingtheviolation
ofatleastoneofthefollowing:Section10boftheSecuritiesandExchangeAct(includingRule10b-5),
Section11,orSection12oftheSecuritiesAct.Creditcrisiscasesarebecomingrarerastheeventsof
2008fadeintothepast.4Onlyfourcreditcrisis-relatedcaseshavebeenfiledsofarin2012.
SeeFigures3and4.
Figure 3. Federal Filings by Type of Case January 2005 – June 2012
182
100
135114
97118
148
86
27
9
1030
9
41102
58
34
71
12
9
15
23 62
26
188
132
196
244
208
232224
232
50
100
150
200
250
300
Nu
mb
er o
f Fed
eral
Fili
ng
s
Projected All Types 2H 2012
Merger Objection Cases
Cases Related to Credit Crisis
Ponzi Scheme Cases
Options Backdating Cases
Other Cases
2005 2006 2007 2008 2009 2010 2011 2012
Merger objection cases
Therecontinuedtobearelativelylargenumberofmergerandacquisitionobjectioncases(merger
objectioncases)inrecentyears.Mergerobjectioncasesfirstrepresentedanimportantcomponent
offederalfilingsin2010,whentheyamountedto31%offilings.Thesecasesarebroughtonbehalfof
shareholdersofatargetcompanyinamergeroracquisition,andtypicallyrestonallegationsthatthe
directorsofthetargetcompanybreachedtheirfiduciarydutytoshareholderseitherbyacceptingaprice
forthesharesthatwastooloworbyprovidinginsufficientdisclosuresaboutthevalueofthedeal.These
casesdifferinmanywaysfromthemoretraditionalsecuritiesclassactions,includinglegalaspects,
dismissalrates,settlementamounts,andthespeedwithwhichtheyaretypicallyresolved.Someof
these differences are discussed below.
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179
116
176
217
151130
150
83
0
50
100
150
200
250
Filing Year
Nu
mb
er o
f Fed
eral
Fili
ng
s
Projected 2H 2012
166
Figure 4. Federal Filings Alleging Violation of Any of: Rule 10b-5, Section 11, or Section 12 By Filing Year; January 2005 – June 2012
2005 2006 2007 2008 2009 2010 2011 2012
Themergerobjectioncasesdifferinanotherimportantwayfromotherrecentwavesofsecurities
litigationsuchasIPOladdering,optionsbackdating,creditcrisis-relatedcases,andChinesereverse
mergers.Togeneralize,theseearlierwavesoflitigationoriginatedwithparticularactions,oralleged
actions, of issuers that ended soon after the litigation began, either because of the litigation itself or
becauseoftheendoftheunderlyingissue.Becauseofthatquickendtothesourceofthelitigationissue,
adefinedpoolofcompaniesthatcouldbesuedwascreatedandthewaveendednaturallywhenthe
poolwasexhausted.Notsoforthemergerobjectioncases,wherethelitigatedissuescouldpotentially
relatetoanymergeroracquisition.Assuch,themergerobjectioncasesmaycontinueindefinitely,inthe
absenceofsubstantialchangesinthelegalenvironment,theirnumberfluctuatingwithmarketcyclesin
M&Aactivity.
ThedeclineinthenumberofcompanieslistedintheUS,discussedabove,maybecontributingtothe
shifttowardslesstraditionaltypesofsecuritiesclassactions,suchasmergerobjectioncases.The
reductionintraditionaltargetsmaygiveplaintiffs’firmsanincentivetoinnovateinthekindsofcasesthat
they bring.
Itisalsoworthnotingthatthemergerobjectioncasesdepictedinfigure3areonlythefederalsecurities
classactioncases.Manymoremergerobjectioncasesarefiledinstatecourtsorasderivativeactions.In
fact,almostthreetimesasmanydealshavebeenthetargetofstateclassactionsashavebeensubjectto
federal securities class actions.5
Rule 10b-5, Section 11, and Section 12
ClassactionsallegingviolationsofRule10b-5,Section11,and/orSection12historicallyhave
representedalargemajorityoffederalsecuritiesclassactionsfiledandaresometimesviewedasthe
“standard”typeofsecuritiesclassaction.6Figure4depictssuchcasesfortheperiod2005totoday.
These“standard”filingspeakedin2008withthecreditcrisis.Sofarthisyear,83suchsecuritiesclass
actionshavebeenfiled.Iffilingscontinueatthispace,bytheendoftheyear,166classactionswillhave
beenfiled—morethaninanyofthelastthreeyears,butwellbelowthe2008peak.
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Newfilingsin2012alsorepresentalargertotaldollarvolumeofpotentialclaimsthaninthelastfew
years.WegaugepotentialclaimswithNERA’sinvestorlossesmeasure.Thisisaproxyfortheaggregate
amountthatinvestorslostfrombuyingthedefendant’sstockduringtheclassperiodrelativetoinvesting
inthebroadermarket;itisalsoaroughproxyforthesizeofplaintiffs’potentialclaims.Aggregate
investorlossesaresimplytotalinvestorlossesacrossallcasesforwhichinvestorlossesarecomputed.7
Attheircurrentrateofaccumulation,aggregateinvestorlossesbytheendof2012wouldbelargerthan
thoseinanyofthepreviousthreeyears.SeeFigure5.Aggregateinvestorlossesareupnotonlybecause
thenumberofcaseshasgrownbutalsobecauseinvestorlossesforatypicalcasehasgrown.The
medianinvestorlossesinthefirstsixmonthsof2012havebeenmorethantwicethemedianinvestor
lossesin2010or2011.SeeFigure6.
Projected 2H 2012
Figure 5. Aggregate Investor Losses for Federal Filings with Alleged Violations of Rule 10b-5, Section 11, or Section 12 By Filing Year; January 2005 – June 2012
$212 $208
$320
$399
$199 $197
$244
$128
$0
$100
$200
$300
$400
Filing Year
$B
illio
n
$256
2005 2006 2007 2008 2009 2010 2011 2012
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$324$270
$400
$560 $561
$253 $247
$548
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
$550
$600
$650
Filing Year
$M
illio
n
2005 2006 2007 2008 2009 2010 2011 1H 2012
Figure 6. Median Investor Losses for Federal Filings with Alleged Violations of Rule 10b-5, Section 11, or Section 12 By Filing Year; January 2005 – June 2012
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Filings by Issuer’s Country of Domicile8
Lastyear,thebigstoryforsecuritiesclassactionfilingswasthewaveofcasesinvolvingChinese
companieslistedintheUS.Thiswaveoflitigationalsohasbeenreferredtoasthe“Chinesereverse
mergerlitigation”becauseofthewaymanysuchcompanieswerelistedintheUS.9
Thisyear,thenumberofthesecaseshasdroppeddramatically.Only10casesagainstChinese
companieslistedintheUShavebeenfiledsofarin2012,lessthanhalfofthe2011filingrate.SeeFigure
7.ThereducedpaceoffilingsagainstChinesecompanieshasatleasttwopotentialexplanations.First,
requirementsforlistingintheUSthroughthereversemergerprocesshavebeentightened.10 Second,
theflurryoffilingsagainstChinesecompaniesmayhavemadeUSlistingslessattractiveforChinese
companies,becauseofincreasedpotentiallegalcosts.
Figure 7. Number of Federal Filings Against Chinese Companies January 2008 – June 2012
41
10
31
71
1
7
3
5
0
5
10
15
20
25
30
35
40
45
Filing Year
Cases Against Chinese
Domiciled Companies
Cases Against Other
Companies with Principal
Executive O�ces in China
5
2
15
38
10
2008 2009 2010 2011 1H 2012
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1188
12
2
8
33
7
6
6
8
17
39
10
6
4
4
5
5
0
10
20
30
40
50
60
70
Filing Year
Nu
mb
er o
f Fed
eral
Fili
ng
sFigure 8. Filings by Company Domicile and Year January 2008 – June 2012
31
23
32
63
Note: Companies with principal executive o�ces in China are included in the totals for Asia.
23
Other
Asia
Canada
Europe
2008 2009 2010 2011 1H 2012
Figure 9. Foreign Domiciled Companies: Share of Filings and Share of All Companies Listed in United States January 2008 – June 2012
11.1%
28.1%
15.8%15.7%16.4% 16.4%
15.7%
19.8%
13.8%12.7%
0%
5%
10%
15%
20%
25%
30%
Filing Year
% of US Listings Represented by Foreign Domiciled Companies
% of US Filings against Foreign Domiciled Companies
Note: Companies with principal executive o�ces in China are included in the counts of foreign companies. Listings data are from Meridian Securities Markets. 2008 – 2011 data are as of respective year end, 2012 data are as of April.
2008 2009 2010 2011 1H 2012
Thenumberofcasesfiledagainstallforeign-domiciledcompaniesisdecreasingtoo,duetothedecrease
infilingsagainstChinesecompanies.SeeFigure8.WiththefallinfilingsagainstChineseissuers,the
rateofsecuritiesclassactionsfilingsagainstforeigncompanieslistedintheUShasnowrevertedtoa
levelonlyslightlyabovetherateforUScompanies.Inthefirsthalfof2012,theproportionofsecurities
classactionsinvolvingforeigncompanieswasapproximatelythesameastheproportionofforeign
companiesamongissuers.SeeFigure9.
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Filings by CircuitFilingsremainconcentratedintwocircuits:theSecond(encompassingNewYork,Connecticut,and
Vermont),andtheNinth(includingCalifornia,Washington,andcertainotherWesternstatesand
territories).However,inthefirsthalfof2012thebalancebetweenthesetwocircuitswassubstantially
differentfromthatinpreviousyears.
Duringthefirsthalfofthisyear,filingsintheSecondCircuithavebeenmadeatahigherpacethaninany
recentyearexcept2008.FilingsintheNinthCircuit,bycontrast,havedecreasedsubstantially.Attheir
currentpace,therewillbeonly30filingsintheNinthCircuitthisyear,whichwouldbethelowesttotal
sincethepassageofthePSLRAin1995.SeeFigure10.
Figure 10. Federal Filings by Circuit and Year January 2008 – June 2012
159
149
97
66
49
59
15161918
12 1013
915
1016
13
5
1312 1110
20
9 105
148
35
47
6761
7 85
9
1923
9 91 1 2
10
74
22
16
1012
14
8
30
1816
8915
4765
84
11
37
520
20
40
60
80
100
Circuit
Nu
mb
er o
f Fed
eral
Fili
ng
s
2008 2009 2010 2011
1H 2012
D.C. 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th
Projected 2H 2012
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Filings by SectorIn2008and2009,withthefalloutfromthecreditcrisis,filingsofsecuritiesclassactionsagainst
companiesinthefinancialsectorreachedapeak,amountingtonearlyhalfofallsecuritiesclassactions.
Theshareoffilingsagainstcompaniesinthefinancialsectorhasdeclinedsincethen.Thedecline
continuedinthefirsthalfofthisyear,inwhichfinancialcompaniesrepresentedonly11%ofissuerssubject
tosecuritiesclassactions.SeeFigure11.Thesefiguresrefertocompaniesnamedasprimarydefendants;
companiesinthefinancialsectoralsohavebeennamedascodefendants.Includingcodefendants,the
fractionofcasesinvolvingafinancialcompanyis19%,thelowestpercentagesinceatleast2005.See
Figure12.
Figure 11. Filings by Sector and Year January 2008 – June 2012
2008 2009 2010
2011 1H 2012
0%
10%
20%
30%
40%
50%
Note: This analysis is based on the FactSet Research Systems, Inc. economic sector classification. Some of the FactSet economic sectors are combined for presentation.
Comm
ercial a
nd Industri
al Serv
ices
Comm
unications
Consumer D
urables and N
on-Dura
bles
Consumer a
nd Distri
bution Serv
ices
Electronic Technolo
gy and Technology Serv
ices
Energy and N
on-Energ
y Min
erals
Finance
Health Technolo
gy and Services
Process In
dustries
Producer a
nd Oth
er Manufa
cturin
g
Retail T
rade
Transporta
tion and U
tiliti
es
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Theshareofsecuritiesclassactionswithadefendantintheelectronictechnologyandtechnology
servicesorhealthtechnologyandservicesindustrieshascontinuedtoincrease,reaching22%and23%,
respectively.Theshareofsecuritiesclassactionfilingsagainstissuersintheenergyandnon-energy
minerals sector also has grown.
Figure 12. Federal Cases in which Financial Institutions Are Named Defendants January 2005 – June 2012
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Filing Year
Per
cen
tag
e o
f Fed
eral
Fili
ng
s
Financial Institution is a Codefendant Only
Financial Institutions are a Primary Defendant and a Codefendant
Financial Institution is a Primary Defendant Only
15%11%
21%
33%28%
23%13%
8%
4%
13%
16%19%
7%
4%
3%
11%11%
24%
23% 23%
15%
16%
9%4%
30%26%
58%
72% 70%
45%
33%
20%
2008 2009 20102005 2006 2007 2011 1H 2012
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Accounting codefendants are becoming rare
Historically,asubstantialfractionofsecuritiesclassactionsincludedanaccountingfirmasacodefendant.
Over2005-2009,12%ofcaseshadaccountingcodefendants;during2010-2011,thatpercentagefell
to4%.Sofarthisyear,notasinglenewlyfiledfederalsecuritiesclassactionhasincludedanaccounting
codefendant.SeeFigure13.
Thisdramaticchangemaybetheresultofchangesinthelegalenvironment.TheSupremeCourt’s2011
decision in Januslimitedtheabilityofplaintiffstosuepartiesnotdirectlyresponsibleformisstatements.
Commentators have noted that, as a result of this decision, auditors may be liable only for statements
madeintheirauditopinion.11Further,thisdecisioncomesaftertheCourt’s2008decisioninStoneridge
limitingschemeliability.Thecumulativeeffectappearstohavemadeaccountingfirmsrelatively
unattractive targets for securities class action litigation.
Despitethevirtualdisappearanceofaccountingcodefendants,accountingallegationsagainstany
defendantarestillacommonfeatureinnewlyfiledcases;in2012,26%ofsecuritiesclassactionfilings
includedallegationsofaccountingviolations.Seeportionlabeled“Accounting”inFigure14.
Figure 13. Percentage of Federal Filings in Which an Accounting Firm is a Codefendant January 2005 – June 2012
2.6%
4.9%
0.0%
11.2%
12.9%11.7% 11.5%
12.5%
0%
2%
4%
6%
8%
10%
12%
14%
Filing Year
2008 2009 20102005 2006 2007 2011 1H 2012
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Figure 14. Allegations in Federal Filings January 2008 – June 2012
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Accounting Breach ofFiduciary
Duty
Customer/VendorIssues
EarningsGuidance
Industry-Related
InsiderTrading
MergerIntegration
Issues
PonziScheme
FinancialProduct /
OperationalDefects
OtherProduct /
OperationalDefects
Other
Categories of Allegations
Per
cen
tag
e o
f Fili
ng
s
2008 2009 2010
2011 1H 2012
AllegationsNERAreviewscomplaintsinsecuritiesclassactionfilingstoevaluatetrendsinthetypesofallegationsthat
aremade.Figure14containsthepercentagesoffilingswithallegationsindifferentcategories.12
Sofarin2012,allegationsrelatedtoproductdefectsandoperationalshortcomings(otherthanfinancial)
havebeenthemostprevalent,havingbeenmadeinalmost45%ofcomplaints.Allegationsrelatedto
earningsguidance,breachoffiduciaryduty(typicalinthemergerobjectioncases),andaccountingwere
eachmadeinmorethanaquarterofthecomplaintsfiled.
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ThefractionofsecuritiesclassactionsallegingviolationsofRule10b-5thatalsoallegeinsidersaleshas
continued to decrease in 2012 and has reached a new low since we started tracking these data in 2005.13
Only14%oftheclassactionsallegingviolationsofRule10b-5haveallegedinsidersalesinthefirsthalfof
2012.SeeFigure15.
Figure 15. Percentage of Federal Filings Alleging Violations of Rule 10b-5 with Insider Sales Allegations By Filing Year; January 2005 – June 2012
21%
27%
18%
14%
50%
47%
52%
31%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
55%
Filing Year
2008 2009 20102005 2006 2007 2011 1H 2012
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Figure 16. Time to File Filings Alleging Violation of Rule 10b-5 January 2007 – June 2012
33
146
49
108114
224
30
188
27
152
49
107
0
30
60
90
120
150
180
210
240
270
300
330
360
Median Time to File (Days) Average Time to File (Days)
Nu
mb
er o
f Day
s
83%88%
67%
92%
75%
84%
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1
Percentage of Cases Filed within 1 Year
Per
cen
t of C
ases
File
d
2008 2009 2010 2011 1H 20122007
This analysis excludes cases where the alleged class period could not be unambiguously determined.
Time to FileForRule10b-5cases,wedefine“timetofile”asthetimefromtheendoftheallegedclassperiodtothe
dateoffilingofthefirstcomplaint.Theaveragetimetofilehasbeendecreasingsince2009.Inthefirst
halfof2012,ittook107days,onaverage,foracomplainttobefiled.Thisisdownfromahighof224days
in2009andfrom120daysin2011.SeeFigure16.
Themediantimetofilewas49daysinthefirsthalfof2012,meaningthathalfofthecomplaintswerefiled
within49days.Unliketheaveragetimetofile,themediantimetofileislongerthanin2011,whenitwas
only 27 days.
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Analysis of Motions
InanimportantadditiontoNERA’sanalysisofclassactions,wehavenowcollecteddataonmotions
andtheirresolutions,forfederalsecuritiesclassactionsfiledandsettledin2000orlater.14Specifically,
wehavecollecteddataonmotionstodismiss,motionsforclasscertification,andmotionsforsummary
judgment.Thesedataallownewinsightintotheprocessofthelitigationofsecuritiesclassactionsandthe
relationbetweendevelopmentsinlitigationandthesettlementthatisultimatelyreached.Inthissection
wereportonourfirstanalysisbasedonthestatusofmotions.
Motionstodismisshadatleastbeenfiledinthevastmajority—nearly90%—ofthecasesthatsettled:the
remainingcasessettledbeforeanysuchmotionhadbeenfiled.Inalmost22%ofcaseswhereamotionto
dismisshadbeenfiled,settlementwasreachedbeforethecourtreachedadecisiononthemotion.
Nextweturntotheresolutionsofthemotiontodismiss.Themostfrequentdecisiononthemotionto
dismisswasapartialgrant/partialdenial,at35%ofcasesfiled,followedbycompletedenialfor28%of
cases.Amotiontodismisswasgrantedin10%ofcasesthatultimatelysettled.15Itisimportanttonote
thatourdataonresolutionsarebasedonthestatusofthecaseatthetimeofsettlement—forexample,
somecasesthathavebeendismissedstillreachsettlement.Thesedismissalswerelikelyeitherwithout
prejudiceorunderappealatthetimeofsettlement;hadthesecasesnotsettled,therewasachancethe
caseswouldberefiledorthedismissalswouldbereversed.Asaresultofourfocusonsettledcases,our
datadonotincludethemanycaseswhichterminatedwithadismissal,withoutasettlement.SeeFigure
17 for more details.
Figure 17. Filing and Resolutions of Motions to Dismiss Cases Filed and Settled January 2000 – June 2012
Denied without Prejudice, 1.9%
Denied, 28.4%
Partially Granted / Partially Denied, 35.2%
Granted, 5.7%
Voluntarily Withdrawn, 3.1%
No Decision Prior to Settlement, 21.7%
Motion Was Filed, 89.8%
No Motion Was Filed, 10.2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Motion to Dismiss Resolution of Motion to Dismiss (if Filed)
Per
cen
tag
e o
f Set
tlem
ents
Granted without Prejudice, 4.1%
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www.nera.com 19
Figure 18. Filing and Resolutions of Motions for Class Certification Cases Filed and Settled January 2000 – June 2012
Denied without Prejudice, 3.4%Denied, 3.7%Partially Granted / Partially Denied, 3.4%
Granted, 41.8%
Voluntarily Withdrawn, 1.2%
No Decision Prior to Settlement, 46.4%
Motion Was Filed, 42.2%
No Motion Was Filed, 57.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Per
cen
tag
e o
f Set
tlem
ents
Motion for Class Certification Resolution of Motion for Class Certification (if Filed)
Mostcasesthatsettledosobeforeamotionforclasscertificationisfiled—58%ofsettledcasesfallinto
thiscategory.Ofthesettledcasesforwhichamotionforclasscertificationhadbeenfiled,46%settled
beforethemotionwasresolved.Afurther45%ofthecaseswithaclasscertificationmotionendupwitha
certifiedclass.SeeFigure18formoredetails.
Figure 19. Time From Complaint Filing to Class Certification Decision Cases Filed and Settled January 2000 – June 2012
Less than 1 year, 5%
1-2 years, 32%
2-3 years, 36%
3-4 years, 14%
4-5 years, 7%
More than 5 years, 6%
While most cases reach settlement before
anydecisiononclasscertification,thecases
thatreachthispointprovideameasureofthe
overallspeedofthelegalprocess.Forthose
casesinwhichthemotionofclasscertification
was eventually decided, the decision came
withinthreeyearsoftheoriginalfiledateof
thecomplaintforalmostthreequartersofthe
cases.SeeFigure19.Itispossiblethat,with
theSupremeCourthavinggrantedcertiorari in
Amgen,thespeedwithwhichadecisiononthe
motionofclasscertificationisreachedwillslow
down, at least until Amgen is decided.
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Motionsforsummaryjudgmenthadbeenfiledbydefendantsinonly11%ofthecasesthatultimately
settled.SeeFigure20fordetailsontheoutcomeswhencasessettledafterdefendantsfiledsucha
motion.Averysmallnumberofmotionsforsummaryjudgmentwerefiledbyplaintiffs.
Figure 20. Filing and Resolutions of Defendants' Motions for Summary Judgment Cases Filed and Settled January 2000 – June 2012
Denied without Prejudice, 2.4%
Partially Granted / Partially Denied, 18.3%
Denied, 18.3%
Granted, 9.8%
Voluntarily Withdrawn, 2.4%
No Decision Prior to Settlement, 48.8%
Motion Was Filed, 10.7%
No Motion Was Filed, 89.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Defendants' Motion for Summary Judgment Resolution of Defendants' Motionfor Summary Judgment (if Filed)
Per
cen
tag
e o
f Set
tlem
ents
Unsurprisingly,thestatusofmotionsatthetimeofsettlementsaffectstypicalsettlementvalues.
Forexample,forcasessettled2008through2012,themediansettlementvalueis$9.1million.Forcases
inwhichaclasswascertifiedatthetimeofsettlement,themediansettlementis$16.5million,overthe
sameperiod.Ingeneral,however,therelationshipbetweensettlementvaluesandmotionstatusatthe
timeofsettlementiscomplicated.Strategicconsiderationsforbothpartiestothelitigationcanhave
animportantinfluenceonthestageatwhichasettlementoccurs.Differentkindsofcasesarelikelyto
settleatdifferentpointsintheprocess,makingsimplecomparisonsacrossallcasesdifficult.Despitethis
difficulty,NERAresearchhasfoundthattherearestatisticallyrobustrelationshipsbetweenmotionstatus
andultimatesettlementvalues,whenothercasecharacteristicsaretakenintoaccount.Itisbeyondthe
scopeofthispapertoprovidedetailsonthisresearch.
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www.nera.com 21
Trends in Case Resolutions
Thetypicalsecuritiesclassactiontakesseveralyearstoreachafinalresolution,andsometakeadecade
ormore.Onlyasmallfractionofsecuritiesclassactionsgototrial(seebelow),whilethelargemajority
of them are settled or dismissed.16
Toanalyzeresolutions,wefocusonannual“cohorts”ofcasesfiledindifferentyears.The2001cohort
isthemostrecentoneforwhichallcaseshavebeenresolved.Forthatcohort,35%ofcaseswere
ultimatelydismissedand65%ultimatelysettled.Forthenextfiveannualcohorts,spanningtheyears
2002-2006,morethan94%ofcaseshavebeenresolved.Resultsforthesemorerecentcohortsindicate
thatthedismissalratemaybeincreasing.Indeed,foreachannualcohortfrom2003to2006,the
dismissalratehasbeen43%ormore.Thesefigureswillultimatelychangesomewhat,becausesome
casesarenotyetresolvedandothercasesthathavebeendismissedmayseereversalsonappealorbe
filedagain(forcasesdismissedwithoutprejudice).Nonetheless,theevidencesofarsuggeststhatthese
more recent annual cohorts will ultimately see a higher dismissal rate than had been seen in earlier years.
SeeFigure21.
Alargerproportionofcasesinthe2007-2012cohortsawaitresolution.Itistooearlytoknowtheexact
dismissalrateforcasesfiledintheserecentyears.Thatsaid,thepreliminarydata,asshowninthechart,
suggest a continuing higher dismissal rate.
Figure 21. Status of Cases as Percentage of Federal Filings By Filing Year; January 2000 – June 2012
37% 35% 38%43% 43%
49%44% 43%
48% 48%
15%
1%
63% 65%59% 54%
52%49%
51%
42%
3% 3% 6%2% 5%
15%22%
38%
55%
84%
99%
37%
30%
14%
8%
1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Filing Year
Dismissed Settled Pending
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Analysis excludes IPO laddering, merger objection cases, and verdicts. Dismissals may include dismissals without prejudice and dismissals under appeal.
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22 www.nera.com
Figure 22. Status of Cases as Percentage of Federal Filings By Year of Resolution; January 2000 – June 2012
Dismissed Settled
44%40% 43%
37%45%
41%44%
40% 40%
49% 52% 55% 53%
56%60% 57%
63%55%
59% 56%60% 60%
51% 48% 45% 47%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Year of Resolution
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Analysis excludes IPO laddering, merger objection cases, and verdicts. Dismissals may include dismissals without prejudice and dismissals under appeal.
Analternatewaytolookatdismissalratesistoexaminethepercentageofcasesdismissedbyyearof
resolution,ratherthanyearoffilingasabove.Between2000andthefirsthalfof2012,dismissedcases
havebeenbetween37%and55%ofthecasesresolved.Thatpercentageis48%-55%in2009-2012,
subjecttothesamedisclaimersaboutdismissalswithoutprejudiceandpossibleappeals.SeeFigure22.
Theprecedingdiscussionofcaseresolutionsdoesnotincludetheresolutionofmergerobjectioncases.
Mergerobjectioncasesusuallyresolvequickly.Mergerobjectionsthatarefiledasfederalsecuritiesclass
actionstendtobevoluntarilydismissedrelativelyoftenbecauseplaintiffsoftenelecttoparticipateinthe
settlementofaparallelactionfiledinstatecourt.Ofthemergerobjectioncasesfiledasfederalsecurities
classactionssincethebeginningof2010,6%settled,34%werevoluntarilydismissedbecauseofthe
settlementinaparallelstateaction,21%weredismissed,and39%werependingasofJune30,2012.
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www.nera.com 23
Trends in Settlements
Number of Settlements17
Settlementshavebeenproceedingatanunusuallyslowpacesofarthisyear.Ifthecurrentpacecontinues
forthewholeyear,settlementactivitywillbeatitslowestlevelsince1999,withonly98casessettled.
Theoverallnumberofsettlementsdidnotshowasignificantslowdownin2011:therewere123
settlementsin2011,whichisinlinewiththehistoricalaverage.However,closerexaminationreveals
thatsettlementactivityhadalreadystartedchangingdramaticallylastyear.Alargeportionofthe2011
settlementsinvolvedmergerobjectioncases.Settlementsareonemorerespectinwhichmerger
objectioncasesdifferfromothersecuritiesclassactions.Mergerobjectioncaseshavetypicallysettled
onlyforadditionaldisclosurestoinvestorsandfeestoplaintiffs’lawyers,withneithermonetary
compensationtoinvestorsnorchangestothetermsofmerger.Over2010-2012,89%ofmergerobjection
caseshavefallenintothiscategory.Ifweexcludesuchmergerobjectioncases,thenumberofsettlements
in2011wasthelowestsincethepassageofPSLRAin1995.
Inthefirstsixmonthsof2012,only31settlementsyieldedmonetarycompensationtoinvestors.If
settlementsweretocontinueatthispacefortherestoftheyear,thenbytheendof2012therewouldbe
evenfewersuchsettlementsthanin2011,settinganewpost-PSLRAlowrecord.SeeFigure23.
Figure 23. Number of Settlements By Settlement Year; January 1996 – June 2012
147134
11198
125 130122
129
110
141
109
148
111 110 109
87
3
9 619
36
18
0
20
40
60
80
100
120
140
160
Settlement Year
All Other Settlements
Merger Objection Settlements without Payment to Class or Changes to Terms of Merger
Projected 2H 2012
110
151
120116
128123
98
Note: Analysis excludes IPO laddering cases and settlements without details. Merger objection settlements with payment to class or changes to terms of the merger are included in
other settlements.
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
31
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24 www.nera.com
$8 $10 $13 $15
$39
$22 $25 $21
$70$79
$52
$41
$14
$106
$31
$71
$16
Figure 24. Average Settlement Value January 1996 – June 2012
$0
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100
$110
Settlement Year
$M
illio
n
2005-2011 Average: $46
Note: Settlements include 309 IPO laddering cases in 2009. Settlements exclude merger objection cases.
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
Settlement AmountsTheaveragevalueofasettlementinthefirsthalfof2012was$71million,asharprisefromtheaverage
valueof$46millionovertheperiod2005-2011.18SeeFigure24.However,ahandfuloftheverylargest
settlementsofteninfluencestheannualaveragesettlement.Forthefirstsixmonthsof2012,theaverage
settlementvaluehasbeensubstantiallyincreasedbythe$1.01billionsettlementinIn Re American
International Group, Inc. Securities Litigation(“AIGsettlement”).TheAIGsettlementiscomposedoffour
tranches,threeofwhichhadbeenpreviouslyapprovedandthefourthofwhichwasapprovedthisyear.
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www.nera.com 25
Figure25containsaveragesettlementsexcludingthoseabove$1billionandtheIPOladderingcases.
Undertheserestrictions(whichexcludetheAIGsettlement),thisyear’saveragesettlementamountis
$41million,reboundingfromlastyear’s$31milliontolevelsclosetotherecordlevelsof2009and2010.
Anotherwaytolookatthetypicalsettlementvalueistoexaminemediansettlements:mediansaremore
robust to extreme observations than are averages.19Themediansettlementamountinthefirstsixmonths
of2012was$7.9million,approximatelythesameasin2011andconsistentwithpre-creditcrisislevels.
SeeFigure26.
Sofarthisyear,therehavebeenfour“mega-settlements”over$100million—arecordhigh14%of
allsettlements.Mostsettlements,however,aremuchmoremodestthanthemega-settlementsthat
dominatethenews.Ofcasesthatsettledinthefirsthalfofthisyear,52%havesettledforlessthan
$10million.Thatpercentageisinlinewithhistoricalobservationssinceatleast2005(apartfrom2010).
SeeFigure27.
$8 $10$13 $15
$12
$16
$22$25
$21
$27$25
$30$32
$42 $41
$31
$41
Figure 25. Average Settlement Value, Excluding Settlements over $1 Billion January 1996 – June 2012
Note: Settlements exclude IPO laddering and merger objection cases. For list of excluded settlements over $1 billion see Table 1.
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Settlement Year
$M
illio
n
2005-2011 Average: $32
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
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26 www.nera.com
$3.7$4.5
$6.5
$5.0 $4.9$4.5
$5.3$6.0
$5.4
$7.5$7.0
$8.2 $8.0
$9.0
$11.0
$7.5 $7.9
Figure 26. Median Settlement Value January 1996 – June 2012
Note: Settlements exclude IPO laddering and merger objection cases.
$0
$2
$4
$6
$8
$10
$12
Settlement Year
$M
illio
n
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
Figure 27. Distribution of Settlement Values January 2008 – June 2012
Note: Settlements exclude IPO laddering and merger objection cases.
2008 2009 2010 2011 1H 2012
17%
13%
6%8%
52%
15%
4%
10%
29%
6%9%
55%
8%6%
52%
10%14%
55%
19%
41%
16%13%
17%
10%
14%
0%
Less Than $10 $10-$19.9 $20-$49.9 $50-$99.9 $100 or Greater
10%
20%
30%
40%
50%
60%
Size of Settlement Value ($Million)
Per
cen
tag
e o
f Set
tled
Cas
es
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www.nera.com 27
Table1presentsthetop10securitiesclassactionsettlementsofalltime.TheAIGsettlementalready
appearedonourlistlastyear,butreachedfinalapprovalthisyearwiththeapprovalofthefourthtranche.
TheAIGsettlementisoneofonlytwosettlementsonthelistafter2008;theotherisEnron,whichonly
completelysettledin2010,thoughbothcasesarebasedonmucholderevents.
Table1. Top 10 Securities Class Action Settlements (As of June 30, 2012)
Ranking CompanySettlement
Year
TotalSettlementYear Value
($MM)
Settlements with Co-Defendants, if Any, that Were
Financial Institutions Accounting Firms
Value($MM) Percent
Value($MM) Percent
1 Enron Corp.1 2010 $7,242 $6,903 95% $73 1%
2 WorldCom, Inc.2 2005 $6,158 $6,004 98% $65 1%
3 Cendant Corp.3 2000 $3,692 $342 9% $467 13%
4 Tyco International, Ltd. 2007 $3,200 $0 0% $225 7%
5 AOL Time Warner Inc. 2006 $2,650 $0 0% $100 4%
6 Nortel Networks (I) 2006 $1,143 $0 0% $0 0%
7 Royal Ahold, NV 2006 $1,100 $0 0% $0 0%
8 Nortel Networks (II) 2006 $1,074 $0 0% $0 0%
9 McKesson HBOC Inc. 2008 $1,043 $10 1% $73 7%
10 American International Group, Inc. 2012 $1,010 $0 0% $98 10%
Total $28,311 $13,259 47% $1,099 4%
Notes: For this summary table only, tentative and partial settlements are included for comparison, and “Settlement Year” in this table represents the year in which the last settlement—whether partial or final—had the first fairness hearing. For partial tentative settlements “Settlement Year” is the year in which this settlement was announced.
1 The fairness hearing for the last tentative partial settlement, with Goldman Sachs, was held on February 4, 2010.
2 The settlement value incorporates a $1.6 million settlement in the MCI WorldCom TARGETS case.
3 The settlement value incorporates a $374 million settlement amount in the Cendant PRIDES I and PRIDES II cases. Settlement in the Cendant PRIDES I case was a non-cash settlement valued at $341.5 million. The settlement value also incorporates 50% of December 29, 2007 separate settlement of claims of Cendant and certain former HFS officers against E&Y. Under the terms of the Cendant Settlement, the Class is entitled to 50% of Cendant’s net recovery from E&Y. The additional recovery to the class is $131,750,000.
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28 www.nera.com
Theaggregateamountofsettlementsapprovedinthefirstsixmonthsofthisyearexceeds$2billion.See
Figure28.Thisamountincludesjustover$1billionfortheAIGsettlement.Ifsettlementsweretocontinue
atthecurrentpacefortherestoftheyear,aggregatesettlementsbyyearendwouldbesubstantially
higherthanlastyear.Thisresult,though,islargelydrivenbytheAIGsettlement;ifweexcludeAIGand
extrapolateonlytheothersettlementstotheendoftheyear,thenbyyearendtheaggregatesettlements
couldbeaslowaslastyear.Inlargepart,thelowaggregatesettlementvaluetodatethisyearreflectsthe
small number of settlements as documented at the beginning of this section.
$1.1 $1.1 $1.4 $1.3
$4.5
$2.0$2.5
$3.1$2.3
$9.9
$8.5$7.5
$4.5
$5.6
$11.5
$2.6$2.2
Figure 28. Aggregate Settlement Value By Settlement Year; January 1996 – June 2012
$0
$2
$4
$6
$8
$10
$12
Settlement Year
$B
illio
n
$4.4
Projected 2H 2012
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Note: Settlements exclude Merger Objection cases. Excluding the 2010 Enron settlement, aggregate settlement value for that year was $4.3 billion.
8:10-cv-00199-JFB-TDT Doc # 120-4 Filed: 09/25/12 Page 31 of 44 - Page ID # 1941
www.nera.com 29
Investor Losses versus SettlementsHistorically,“investorlosses”havebeenapowerfulpredictorofsettlementsize.Asnotedabove,
NERA’sinvestorlossesvariableisaproxyfortheaggregateamountthatinvestorslostfrombuyingthe
defendant’sstockratherthaninvestinginthebroadermarketduringtheallegedclassperiod.Investor
lossescanexplainmorethanhalfofthevarianceinthesettlementvaluesinourdatabase.20
Ingeneral,settlementsizesgrowasinvestorlossesgrow,buttherelationshipisnotlinear.Inparticular,
settlementsizetendstoriselessthanproportionately,sosmallcasestypicallysettleforahigherfraction
ofinvestorlosses(i.e.,morecentsonthedollar)thanlargercases.Forexample,caseswithinvestorlosses
below$20milliononaveragesettlefor37.3%ofinvestorlosses,whilecaseswithinvestorlossesover
$10billionsettleforanaverageof2.2%percentofinvestorlosses.SeeFigure29.
Figure 29. Settlement Value as a Percentage of Investor Losses By Level of Investor Losses; January 1996 – June 2012
Less than $20
$20-$49
$50-$99
$100-$199
$200-$399
$400-$599
$600-$999
$1,000-$4,999
$5,000-$9,999
$10,000 or Greater
37.3%
2.2%
17.1%
1.1% 1.0% 0.7%
10.2%
7.4%
4.2%3.6%
2.6% 2.9%2.0% 2.0%
9.1%
4.9%3.5% 2.7% 1.8% 1.6%0%
5%
10%
15%
20%
25%
30%
35%
40%
Investor Losses ($Million)
Average Median
Notethattheinvestorlossesvariableisnotameasureofdamagessinceanystockthatunderperforms
theS&P500wouldhave“investorlosses”overtheperiodofunderperformance;ratheritisaroughproxy
fortherelativesizeofinvestors’potentialclaims.Thus,ourfindingsontheratioofsettlementtoinvestor
lossesshouldnotbeinterpretedastheshareofdamagesrecoveredinsettlementbutratherasthe
recoverycomparedtoaroughmeasureofthe“size”ofthecase.
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30 www.nera.com
$64 $94 $119 $113$162 $172
$348
$215
$329 $338$398
$328 $339$389
$584$497
$1,179
Figure 30. Median Investor Losses and Median Ratio of Settlement to Investor Losses By Settlement Year; January 1996 – June 2012
Note: Settlements exclude IPO laddering and merger objection cases.
7.0%
5.7%
4.9%4.7%
4.0%
3.5%
3.0% 3.0%
2.4%2.3%
2.0%
2.7%
2.2%2.5%
2.4%
1.2%
1.3%
$0
$200
$400
$600
$800
$1,000
$1,200
Settlement Year
Med
ian
Inve
sto
r Lo
sses
($M
illio
n)
0%
1%
2%
3%
4%
5%
6%
7%
8%
Med
ian
Rat
io o
f Set
tlem
ent t
o In
vest
or
Loss
es (%
)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
MedianinvestorlossesforsettledcaseshavebeensteadilyincreasingsincethepassageofthePSLRA,
from$64millionforsettlementsin1996to$497millionin2011.Theyappeartohaveskyrocketedin
thefirsthalfof2012,exceeding$1billion.However,thisfigureisbasedonarelativelysmallnumberof
settlementsandassuchmaynotrepresentatrendthatwillcontinuefortherestoftheyear.Themedian
ratioofsettlementtoinvestorlosseshasreachedanewpost-PSLRAlowat1.2%,butthatisunsurprising
giventhatinvestorlossesarehighand(asexplainedabove)settlementstypicallygrowlessthan
proportionallytoinvestorlosses.SeeFigure30.
8:10-cv-00199-JFB-TDT Doc # 120-4 Filed: 09/25/12 Page 33 of 44 - Page ID # 1943
www.nera.com 31
Plaintiffs’ Attorneys’ Fees and ExpensesThesettlementvaluesthatwereportincludeplaintiffs’attorneys’feesandexpensesinadditiontothe
amountsultimatelypaidtotheclass.InFigure31,feesandexpensesasaproportionofsettlementvalue
forsettlementsfinalizedfrom1996throughJune2012,excludingmergerobjectioncases,areshown.
Typically,theproportionofasettlementtakenbyfeesandexpensesdeclinesasthesettlementsizerises.
Forsettlementsbelow$5million,forexample,medianplaintiffs’attorneys’feesare33%ofthesettlement
amount;whileforsettlementsofover$500million,medianfeesfallto11%.Medianplaintiffexpense
ratiosfalloverthissettlementvaluerangeaswell,asseeninFigure31.
11.1%
22.4%
27.0%
30.0%30.0%
33.3%
1.4%1.8%2.7%3.7%5.3%
Figure 31. Median Plainti�s' Attorneys' Fees and Expenses, by Size of Settlement January 1996 – June 2012
Note: Analysis excludes merger objection cases.
0.5%0%
5%
10%
15%
20%
25%
30%
35%
< 5 ≥ 5 and < 10 ≥ 10 and < 25 ≥ 25 and < 100 ≥ 100 and < 500 ≥500
Settlement Value ($Million)
Per
cen
tag
e o
f Set
tlem
ent V
alu
e
Median Plainti�s' Attorneys' Fees
Median Plainti�s' Attorneys' Expenses
Wehavealsoanalyzedtrendsinplaintiffs’attorneys’feesovertime.Medianfeesforallsettlementsother
thanmergerobjectionscasesduringthefirsthalfofthisyearhaverepresented20%ofthesettlement
value—asmalldecreasesincelastyear.SeeFigure32.Thegeneraldownwardtimetrendinthefee
percentageisexplained,atleastinpart,bythefactthatcaseshavebeengettingbiggerovertime,and
that,asdocumentedabove,biggercasestypicallyhavelowerfeepercentages.
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32 www.nera.com
30%
25%
30%
25% 25%
20%
25% 25%24%
21%22%
20%
30%
32%31%33%
30%
Figure 32. Median Plainti�s' Attorneys' Fees, by Year For Settlement Values Greater Than or Equal to $25M; January 1996 – June 2012
Note: Analysis excludes merger objection cases.
0%
5%
10%
15%
20%
25%
30%
35%
Settlement Year
Per
cen
tag
e o
f Set
tlem
ent V
alu
e
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
Wereportthefeesformergerobjectioncasesseparately.Forthemergerobjectioncasesthatsettledat
thefederallevelsince2005withnopaymenttoinvestors,plaintiffs’attorneys’feeshavebeenbelow$1
millionin68%ofthecases.SeeFigure33.Forthemergerobjectioncasesthatwerevoluntarilydismissed
becauseaparallelstateactionsettled,plaintiffs’attorneys’feesintheparallelstateactionhavebeen
below$1millionin71%ofthecases.
5%
27%
18% 18%
9% 9% 9%
18%
5%3%
22%
32%
14%11%
Figure 33. Distribution of Plainti�s' Attorneys' Fees and Expenses in Merger Objection Settlements With No Payment to Investors; January 2005 – June 2012
Note: Cases filed and settled January 2005 - June 2012. For merger objections voluntarily dismissed at federal level, attorneys’ fees and expenses refer to the settlement in the parallel state merger objection case, when such settlement exists.
0%
5%
10%
15%
20%
25%
30%
35%
Size of Attorneys' Fees and Expenses
Less Than $250,000 $250,000-$499,999 $500,000-$749,999 $750,000-$999,999 $1mil-$2.49mil $2.5mil-$4.99mil $5mil or Greater
Perc
enta
ge o
f Set
tlem
ents
Case Settled at Federal Level
Case Voluntarily Dismissed at Federal Level
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Figure 34. Aggregate Plainti�s' Attorneys' Fees and Expenses January 1996 – June 2012
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
$1,800
$2,000
Settlement Year
Val
ue
($M
illi
on
)
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
$558
$828
$427
$1,130
$960
$1,579
$861
$1,146
$1,327
$535
$374
$58
$70
$52
$115
$84
$126
$84
$73
$106
$42
$40$297 $318
$374$319
$480
$944
$287 $308 $355 $293
$642$485
$45
$11 $11$19
$26
$49 $577
$828
$530$616
$692
$898
$1,218$1,245
$1,045
$1,704
$1,429
Agregate Plainti�s' Attorneys' Fees
Agregate Plainti�s' Attorneys' Expenses
Projected 2H 2012
Aggregateplaintiffs’attorneys’feesandexpensesforallfederalsettlementshavebeen$414millioninthe
firstsixmonthsofthisyear.SeeFigure34.Iffeesandexpensesweretocontinueatthispace,theywould
benoticeablyhigherthanlastyear,butstillthesecondlowestsince2004.Feesandexpensesforthe
firstsixmonthsofthisyearinclude$143millionfortheAIGsettlement.IftheAIGfeesandexpensesare
excluded,andiftheremainderweretocontinueatthesamepacefortherestoftheyear,aggregatefees
andexpensesfor2012wouldendupbeingsimilartotheaggregatelevelfor2011.
Thesefeesarecalculatedforfederalsecuritiesclassactionsonly.Assuch,theydonotincludefeesand
expensesformergerobjectioncasesfiledinstatecourtorasderivativeactions,whichmaybelucrative
forplaintiffs’lawfirms.OneexampleisIn Re Southern Peru Copper, a case in Delaware Chancery Court
thatyieldedawell-publicizedawardof$285milliontoplaintiffs’attorneys.
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34 www.nera.com
Characteristics of Settled CasesOneofthepolicygoalsofthePSLRAwastoincreasetheparticipationofinstitutionsasleadplaintiffsin
securitiesclassactions,andinthatrespectithasbeenasuccess.Theproportionofsettledcaseswithan
institutionalleadplaintiffrosesharplybetween1996and2010,asdidthefractionofsuchsettlementsin
whichtheinstitutionalleadplaintiffwasapublicpensionplan,peakingat71%and40%,respectively.
Thetrendofincreasinginstitutionalparticipationappearstohaveleveledoffinthelasttwoorthreeyears.
Thefractionofleadplaintiffsthatarepublicpensionplanshasremainedatornear40%since2009.
Duringthefirsthalfof2012,thetotalfractionofinstitutionalleadplaintiffshasbeen65%—alittlebelow
the2009and2010levels.SeeFigure35.
NERA’sresearchonfactorsexplainingtheamountsforwhichcaseshavesettledhistoricallyfindsthat,
onaverage,institutionalleadplaintiffparticipationisassociatedwithlargersettlements.
Figure 35. Percentage of Settlements with an Institutional Lead Plainti� Cases Filed and Settled; January 1996 – June 2012
0% 4% 4% 5% 4%12% 8% 11% 10%
16%22% 22%
38% 40% 40% 40%
4% 10%17% 18%
17%19% 14%
29%
32%
38% 39%
33% 29%23% 25%
0%
9%13%
22% 22%
29% 27%24%
40%
47%
65%
22%
60% 62% 63%69%71%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Settlement Year
Public Pension Plan Plainti�
Other Institutional Lead Plainti�
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
A“blow-up”provisiontypicallypermitsasettlementtobeinvalidatedifmorethanacertainproportion
oftheclassoptsout.Theseprovisionshavebecomeanincreasinglycommonfeatureofsettlement
agreementsinrecentyears.In2012,theproportionofsettlementswithsuchprovisionsincreasedto
40%ofallsettlements,continuinganupwardtrend.SeeFigure36.
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Figure 36. Percentage of Settlements with a "Blow-Up" Provision (Settlements with Available Settlement Notice) Cases Filed and Settled; January 1996 – June 2012
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
0.0% 0.0%
16.7%
12.2%
17.4%
27.3%
16.0%
23.3%
28.8%
23.7%
21.4%
25.0%
28.2%
25.0%
40.0%
18.3%
39.5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
Settlement Year
Figure 37. Percentage of Settled Cases with a Parallel Derivative Action Cases Filed and Settled; January 1997 – June 2012
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012
Settlement Year
11.1%
26.1%
17.3%
25.6%
21.5%
29.7%
37.2%
47.4%
64.2%
56.4%
62.5%
55.8%
50.0%
62.4%
49.1%
23.1%
0%
10%
20%
30%
40%
50%
60%
70%
Note: We excluded cases filed and settled in 1996 because there was only one case and it had a derivative action.
“Tag-along”derivativeactionsassociatedwithsecuritiesclassactionshavebeenproliferatingover
thelasttenyears.Overtheperiod2007-2010,morethan60%ofsecuritiesclassactionshadparallel
derivativesuits.Thisyearandlast,thetrendtowardsuchderivativeactionsappearstohavereversed.In
2012,theproportionofcaseswithaparallelderivativeaction(amongthosethatsettled)hasdeclinedto
50%.SeeFigure37.
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36 www.nera.com
Trials
Fewsecuritiesclassactionsproceedtotrial,thoughthosethatdotendtoattractagreatdealofattention.
Fewerstillgetallthewaytoaverdict.Soitisnotsurprisingthattherehavebeennotrialsorverdictssofar
in2012thatweknowof.SincethepassageofthePSLRAinlate1995,therehavebeenonly30securities
classactiontrials,ascomparedtoatotalofover3,909filings.Figure38summarizedthestatusofcases
thathavegonetotrialandTable2providesdetails.
Figure 38. Status of 30 Securities Class Actions That Went to Trial After PSLRA As of June 30, 2012
11
Verdict for Defendants
Verdict for Plainti�s
7
Mixed Verdict
5
6
Settled With at Least One Defendant During Trial
1
DefaultJudgment
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www.nera.com 37
Table2. Thirty Securities Class Actions That Went to Trial after PSLRA
Case(1)
Federal Circuit(2)
File Year (3)
Trial Year1 (4)
I. Verdict for Defendants (11)
1 American Mutual Funds (Fee Litigation)2 9 2004 2009
2 American Pacific Corp.3 9 1993 1997
3 BankAtlantic Bancorp, Inc.4 11 2007 2011
4 Biogen Inc. 1 1994 1998
5 Everex Systems Inc.5 9 1992 2002
6 Garment Capitol Associates 2 1996 2000
7 Health Management, Inc. 2 1996 1999
8 JDS Uniphase Corp. 9 2002 2007
9 NAI Technologies, Inc. 2 1994 1996
10 Thane International, Inc.6 9 2003 2009
11 Tricord Systems, Inc. 8 1994 1997
II. Verdict for Plaintiffs (7)
1 Apollo Group, Inc.7 9 2004 2010
2 Claghorn / Scorpion Technologies, Inc. 9 1998 2002
3 Computer Associates International, Inc. 2 1991 2000
4 Helionetics, Inc. 9 1994 2000
5 Homestore.com, Inc.8 9 2001 2011
6 Real Estate Associates, LP 9 1998 2002
7 U.S. Banknote Corp.9 2 1994 1997
III. Mixed Verdict (5)
1 Clarent Corp.10 9 2001 2005
2 Digitran Systems, Inc.11 10 1993 1996
3 ICN Pharmaceuticals, Inc.12 2 1987 1996
4 Household International, Inc.13 7 2002 2009
5 Vivendi Universal, S.A.14 2 2002 2010
IV. Settled During Trial15 (6)
1 AT&T 3 2000 2004
2 First Union National Bank / First Union Securities / Cypres Funds 11 2000 2003
3 Globalstar Telecommunications, Ltd. 2 2001 2005
4 Heartland High-Yield / Short Duration High Yield Municipal Bond Funds 7 2000 2005
5 WorldCom 2 2002 2005
6 Safety-Kleen Corp. (Bondholders Litigation)16 4 2000 2005
V. Default Judgment (1)
1 Equisure Inc.17 8 1997 1998
Notes: Until otherwise noted, all these cases went to a jury trial. Data are from case dockets. Cases within each group presented in alphabetical order.
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Table 2 Notes Continued:
1 Trial Year shows the year in which the trial began or, when there are relevant post-trial developments (such as a ruling on an appeal or a re-trial), the most recent such development.
2 Judgment for defendants entered 12/28/09 after a 7/28/09-8/7/09 bench trial.
3 On 11/27/95 the US District Court granted in part the Company’s motion for summary judgment ruling that the Company had not violated the federal securities laws in relation to disclosure concerning the Company’s agreements with Thiokol. The remaining claims, which related to allegedly misleading or inadequate disclosures regarding Halotron, were the subject of a jury trial that began in December 1995 and ended on 1/17/96. The jury reached a unanimous verdict that neither the Company nor its directors and officers made misleading or inadequate statements regarding Halotron. Verdict was appealed, but on 6/5/97 affirmed by the 9th Circuit Court of Appeals.
4 On 11/18/10 the jury returned a verdict in the plaintiffs’ favor, finding seven of the statements to have been false, and awarding damages of $2.41 per share. On 4/25/11 the jury verdict was set aside by the court in a post-trial ruling. Judge opinion granted the defendants’ motion for judgment as a matter of law and indicated that she will enter judgment in defendants’ favor following remaining procedural issues.
5 1998 verdict for defendants was reversed and remanded by the 9th Circuit Court of Appeals; 2002 retrial again yielded a verdict for defendants.
6 On 6/10/05 bench trial verdict dismissed the case. Thereafter, plaintiffs filed a notice of appeal from the trial verdict in favor of the defendants. On 11/26/07, the US Court of Appeals of the 9th Circuit issued an Opinion reversing and remanding the action back to District Court with instructions to enter judgment in favor of the plaintiffs, to address loss causation, and to conduct further proceedings consistent with this opinion. On 12/5/08 the defendants filed a Motion for Judgment On Loss Causation and a Motion for Judgment On Lack Of Control Person Liability And Good Faith Defenses. On 3/17/09, the Court granted the defendants’ Motion for Judgment On Loss Causation but denied the Motion for Judgment On Lack Of Control Person Liability And Good Faith Defenses. Final Judgment on behalf of the defendants was entered on 3/25/09.
7 On 1/16/08 a federal jury found Apollo Group Inc. and certain former officers liable for securities fraud and ordered them to pay approximately $280 million to shareholders. On 8/8/08 the District Court overturned the jury verdict; Federal Judge James A. Teilborg’s order vacated the judgment and entered judgment in defendants’ favor. Following the dismissal, a notice of appeal was filed on 8/29/08. On 6/23/10 the United States Court of Appeals for the 9th Circuit reversed the District Court’s post-trial ruling and remanded the case with instructions that the District Court enter judgment in accordance with the jury’s verdict.
8 On 1/25/11, a civil jury trial commenced against the sole remaining defendant in the case – Stuart H. Wolff, the company’s former Chairman and CEO. On 2/24/11 a Central District of California rendered a verdict on behalf of plaintiffs. The jury found that the defendant, Stuart H. Wolff, had violated the federal securities laws in connection with a series of statements the company made in 2001. All other defendants had previously settled or been dismissed.
9 Judge subsequently vacated the jury verdict and approved a settlement.
10 Chairman of Clarent liable; Ernst & Young not liable.
11 A 9/30/96-10/24/96 jury trial resulted in a mixed verdict, with liability for Digitran Systems, Inc. and its former president, but not liable verdict for other individual defendants and the auditor, Grant Thornton.
12 Hung jury.
13 The jury found in favor of the defendants with respect to 23 of the alleged misstatements, but in favor of the plaintiffs with respect to 17 other statements.
14 The trial started 10/5/09. On 1/29/10 the jury returned a verdict against the company on all 57 of the plaintiffs’ claims. However, the jury also found that the two individual defendants, (former CEO Jean-Marie Messier and former CFO Guillaume Hannezo) were not liable.
15 At least one defendant settled after the trial began, but prior to judgment.
16 Some director-defendants settled during the trial. Default judgment against CEO and CFO who failed to show up for trial.
17 Default judgment against Equisure Inc. which failed to show up for trial.
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Notes
1 ThiseditionofNERA’sresearchonrecenttrendsinshareholderclassactionlitigationexpandsonpreviousworkbyourcolleaguesLucyAllen,ElaineBuckberg,FrederickC.Dunbar,ToddFoster,VinitaM.Juneja,DeniseNeumannMartin,JordanMilev,RobertPatton,StephaniePlancich,andDavidI.Tabak.Wegratefullyacknowledgetheircontributiontopreviouseditionsaswellasthiscurrentversion.TheauthorsalsothankLucyAllenforhelpfulcommentsonthisversion.Inaddition,wethankCarlosSoto,NicoleRoman,andotherresearchersinNERA’sSecuritiesandFinancePracticefortheirvaluableassistancewiththispaper.Theseindividualsreceivecreditforimprovingthispaper;allerrorsandomissionsareours.Dataforthisreportarecollectedfrommultiplesources,includingcomplaints,casedockets,RiskMetricsGroup/SecuritiesClassActionServices(SCAS),DowJonesFactiva,BloombergFinanceL.P.,FactSetResearchSystems,Inc.,SECfilings,andthe publicpress.
2 NERAtracksclassactionsfiledinfederalcourtandinvolvingallegedviolationsofthefederalsecuritieslaws.Ifmultiplesuchactions are filed against the same defendant, are related to the same allegations, and are in the same circuit, we treat them asasinglefiling.However,multipleactionsfiledindifferentcircuitsaretreatedasseparatefilings.Ifcasesfiledindifferentcircuits are consolidated, we revise our count to reflect that consolidation.Therefore,ourcountforaparticularyearmaychangeovertime.Differentassumptionsforconsolidatingfilings would likely lead to counts that are directionally similar but may, in certain circumstances, lead observers to draw a differentconclusionaboutshort-termtrendsinfilings.
3 ThisaverageexcludestheIPOladderingcases.
4 Wehaveclassifiedcasesascreditcrisis-relatedbasedontheallegationsinthecomplaint.Thecategoryincludescaseswithallegationsrelatedtosubprimemortgages,mortgage-backedsecurities, and auction rate securities, as well as some other casesallegedtoinvolvethecreditcrisis.Ourcategorizationisintendedtoprovideausefulpictureoftrendsinlitigationbutisnotbasedondetailedanalysisofanyparticularcase.
5 Thisfigurereferstodealsannouncedbetween2010and2011for$100millionormore,completedbyFebruary29,2012,withaUSpubliccompanyastarget,andchallengedbyDecember31,2011.DatafromaproprietaryNERAdatabase.
6 Themergerobjectioncasesformthelargestgroupoffederalsecurities class actions not involving such alleged violations.
7 Wedonotcomputeinvestorlossesforallcasesincludedin thispublication.Forinstance,classactionsinwhichbuyers of common stock are not alleged to have been damaged are not included.
8 Ournormalapproachtogeographicalclassificationistousethecountryofdomicilefortheissuingcompany.ManyofthedefendantChinesecompanies,however,obtainedtheirUSlistingthroughareversemergerand,consequently,reportaUSdomicile.Forthisreason,wehavealsotrackedcompanieswiththeirprincipalexecutiveofficesinChina.
9 Approximately63%oftheChinesecompaniestargetedbyasecuritiesclassactionintheperiod2010-2012werelistedintheUSthroughreversemergers.
10 See,forexample,XueqingLindaJiandHunterQiu, “Weighing Reverse Mergers for Private Chinese Cos,” Law360, June 25, 2012.
11 See,forexample,GwynQuillenandAmyJune,“ClarifyingAccountants’SecondaryLiability,”Law360,August8,2011.
12 InearliereditionsofNERA’s“RecentTrendsinSecuritiesClassActionLitigation,”wedisplayedthisinformationdifferently. Thepercentagecorrespondingtoeachcategoryisnowcomputedasthenumberofcomplaintsmakinganallegationinthatcategoryasapercentageofthetotalnumberofcomplaintsfiled;inearliereditions,itwascomputedasapercentageofthetotalnumberofallegationsinanycategory.Inotherwords,wehavechangedthedenominatorfromtotalnumberofallegationstototalnumberofcases.Thechangeinmethodologycanleadtodifferentresultsbecausecomplaintsoftenmakemultipleallegations.
13 WehaveupdatedthisanalysissothatthefractioniscomputedonlyovercasesallegingviolationofRule10b-5.
14 Cases for which investor losses cannot be calculated are excluded.ThelargestexcludedgroupsaretheIPOladderingcasesandthemergerobjectioncases.
15 Thus,itisnotthatonly10%ofcasesaredismissed;itisthat10%ofsettledcasesinwhichamotiontodismisshadbeenfiled, had been dismissed at the time of settlement.
16 Thedismissedcategoryincludesseveraloutcomes:caseswithgranted motion to dismiss granted, denied motion for class certification,grantedmotionforsummaryjudgmentfiledbydefendant, and cases that were voluntarily dismissed. Motions todismissthatareonlypartiallygrantedarenotincludedinthedismissed category.
17 Unlessotherwisenoted,tentativesettlements(thoseyettoreceivecourtapproval)andpartialsettlements(thosecoveringsomebutnotallnon-dismisseddefendants)arenotincludedinoursettlementstatistics.Wedefine“SettlementYear”asthe year of the first court hearing related to the fairness of the entiresettlementorthelastpartialsettlement.
18 Becausemergerobjectioncasestypicallysettlefornomonetarycompensationtoinvestors,weexcludeallmergerobjectionsettlementsfromtheanalysisofsettlementvalues.
19 Themediansettlementvalueforayearisthelevelthathalfofall settlements that year exceeded and half fell below.
20 Technically,theinvestorlossesvariableexplainsmorethanhalfofthevarianceinthelogarithmofsettlementsize.InvestorlossesovertheclassperiodaremeasuredrelativetotheS&P500,usingaproportionaldecaytradingmodeltoestimatethe number of affected shares of common stock. We measure investorlossesonlyiftheproposedclassperiodisatleasttwodays.Oursampleincludesmorethan1,000post-PSLRAsettlements.
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