U.S. securities class-action settlements rebound, may not last

March 27 Thu Mar 27, 2014 12:01am EDT

March 27 (Reuters) - The number and size of U.S. securities class-action settlements rose in 2013, a new study shows, but the gains may not last if the U.S. Supreme Court limits investors' ability to band together to bring lawsuits.

Sixty-seven settlements worth $4.77 billion, the highest dollar amount in six years, won court approval in 2013, up from 57 settlements worth $3.26 billion a year earlier, according to the study released on Thursday by Cornerstone Research.

Large settlements skewed the data, with more than half of the payout attributable to Bank of America Corp's $2.43 billion settlement of claims it misled shareholders when buying Merrill Lynch & Co in late 2008.

The peak years remain 2005 and 2006, when accords over WorldCom Inc's and Enron Corp's collapses led to respective overall settlement totals of $10.93 billion and $19.89 billion.

But the median settlement - meaning half were larger and half smaller - was just $6.5 million in 2013, down from $10.3 million a year earlier, reflecting the diminishing impact of lawsuits related to the global financial crisis.

Settlements over $50 million were three times more likely to have corresponding U.S. Securities and Exchange Commission enforcement actions, and four times more likely to have public pension plans as lead plaintiff, than smaller accords.

Cornerstone said the number of settlements is unlikely to decline much soon, reflecting the "relatively high" number of recent lawsuits alleging misrepresentations or inadequate disclosures. The number of securities lawsuits seeking class action status rose 9 percent last year to 166. [D:nL2N0L1170]

But the Supreme Court could change much of that.

In Halliburton Co v. Erica P. John Fund, the court is weighing changes to a 1988 precedent that said shareholders may pursue class actions by relying on a presumption that company stock prices reflect all publicly available information.

This "fraud on the market" theory frees shareholders from showing individually that they relied on false statements, and underpinned the subsequent boom in securities class actions.

At oral argument on March 5, some justices showed sympathy for what Justice Anthony Kennedy called a "midway position," in which the court would not overrule the precedent but instead require investors to show that a particular misrepresentation meaningfully affected a stock's price.

"If the ruling in Halliburton severely limits investors' ability to get large-scale class actions certified, the future of such cases is up in the air," Joseph Grundfest, a Stanford Law School professor who works with Cornerstone, said in a statement.

Grundfest is also a former commissioner of the U.S. Securities and Exchange Commission. (Reporting by Jonathan Stempel; Editing by David Gregorio)

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