What Drove the 75% Jump in Global Settlements in Investor Lawsuits in 2022?

The tally of settlements in investor lawsuits topped $7.4 billion worldwide last year, an increase of more than 75 percent year-over-year. 

That’s according to the folks at ISS Securities Class Action Services, who help institutional investors track and manage claims in litigation. Jeff Lubitz, the managing director of ISS SCAS, and his team are still a week or two away from putting out their annual “Top 100” report, which will provide a deep dive on 2022 settlement activity in the United States and insert new entrants into the top 100 U.S. settlements of all time. But last week they published an overview of the top 10 largest shareholder settlements finalized last year in the United States, as well as a handful of international settlements and deals in investor-related antitrust suits that contributed to the jump in the overall settlement value. Yesterday, the Litigation Daily, a sister publication to Treasury & Risk, caught up with Lubitz to discuss the securities-related settlement landscape.

What stood out about last year’s crop of settlements?

For one thing, the power of trial pressure appears significant. According to ISS SCAS, only 15 shareholder-related class actions have been tried to verdict since the passage of the Private Securities Litigation Reform Act of 1995. And, Lubitz says, in two of the 10 largest settlements in the United States—cases against Twitter and Blackberry—the threat of a looming trial was “creeping up against the defendants.”   

In the Twitter case, the company faced claims that it misled investors about what its internal metrics meant for its growth prospects and user engagement during a six-month period in 2015. The $809.5 million settlement was the largest of 2022 in the U.S. and 19th largest of all time, according to ISS SCAS. The parties announced the deal just before the scheduled start of a jury trial in September 2021 and got final approval from U.S. District Judge Jon Tigar in Oakland, California, in November 2022.

The $165 million dollar deal in the Blackberry case was announced in April, the day before jury selection was set to begin. The company agreed to settle claims that it misled investors during a six-month period in 2013 by allegedly overstating the prospects of its BlackBerry 10 line of smartphones. Blackberry took a writedown of nearly $1 billion in charges related to unsold inventory and laid off about 4,500 employees, or about 40 percent of its workforce, after the launch of the unsuccessful line. in September, U.S. District Judge Colleen McMahon in Manhattan signed off on the settlement. 

Another settlement that is among the year’s 10 largest, a $105 million settlement involving Walgreens that was approved in October, was reached while the parties were briefing issues around potential expert testimony at trial. 

Lubitz notes that, of the 110 settlements ISS SCAS logged in federal court in the U.S. in 2022, the average time from filing to settlement was 3.8 years. That means the settlement market is currently feeling the impact of a record number of new federal securities filings during the years 2017 to 2019, and has yet to be affected by the dip in the number of new filings in each of the past three years.

“It only makes sense that you’re going to have some significant settlements follow three, four, or five years down the road,” Lubitz says. 

Lubitz, however, is apprehensive about whether the wave of high-end settlements will continue into 2023. Even though Dell announced, late last year, a tentative $1 billion securities settlement and McKesson one for $142 million, both of which could be teed up for final approval this year, Lubitz says the overall drop in filings from 2020 to 2022 is likely to be felt eventually. 

“I think we’ll definitely see a lot of large, substantive settlements that will obviously still occur, but I just have a little bit of apprehension in terms of, are we going to see so many widespread large settlements in the next year or two?” Lubitz says. “In looking at 2022, there were 10 settlements that were resolved for between $100 million and $1 billion. That more than doubled what happened in 2021.”

From: Litigation Daily