ISS Securities Class Action Services (ISS SCAS) recorded for 2019 101 approved monetary U.S. settlements valued at $3.17 billion, and two of them were large enough to qualify for the Top 100 of all-time list.
Making the Top 100 in 2019 were global oil exploration company Cobalt International Energy at $389.6 million and Chinese conglomerate and NYSE-listed Alibaba Group Holding at $250 million.
The ISS Securities Class Action Services’ “Top 100 Settlements of All-Time” is an annual report that identifies the largest securities class action settlements filed after the passage of the Private Securities Litigation Reform Act of 1995, ranked by the total value of the settlement fund.
The 2019 totals are a significant decrease compared with 2018 when U.S. securities class actions totaled $5.84 billion from 126 approved settlements. One action, the $3 billion Petrobas settlement, accounts for much of the disparity between the two years.
Federal court settlements were largely tied to violations of the Employment of Manipulative and Deceptive Practices rule (or Rule 10b-5 of the Securities and Exchange Act of 1934). Of the 101 settlements, 80 received judgments in federal courts. A total of 74 federal court settlements were tied to Rule 10b-5, three of which stemmed from alleged insider trading, and another three were a by-product of corporate transactions. Additionally, six federal settlements were made for violations of Generally Accepted Accounting Principles (GAAP), and four companies were identified as having to restate their financials.
On the other hand, 17 of the 80 settlements were tied to violations associated with the Civil Liabilities on Account of False Registration Statement (SEC 11 of the Securities Act of 1933) where 13 companies completed their stock offerings. Four companies that settled in federal court were required to restate their financials and were part of the six settlements that alleged violations of GAAP. Seven large cap companies listed on the S&P 500 index settled in 2019 for a total of $377 million.
The courts that handled the greatest volume of cases were the United States District Court (Southern–New York) which finalized 25 cases, and ten settlements each in two United States California District Courts (Central and Northern).
In addition to federal court settlements, 21 of the 101 settlements in 2019 were completed in state courts. Twelve state court settlements addressed violations of fiduciary duties resulting from corporate transactions. In addition, seven state court settlements were associated with violations of SEC 11 which stemmed from a company’s public offerings. The Delaware Chancery Courts and the California Superior Courts handled eight approved settlements apiece in 2019.
Of the two 2019 settlements recorded in the Top 100, Cobalt International Energy, Inc. was charged with 10b-5 and SEC 11 allegations. Alibaba was charged with violating rule 10b-5 of the Securities Act which stemmed from misstatements made during the company’s initial public offering. The Cobalt action occurred in the Southern District of Texas and was led by Bernstein Litowitz Berger & Grossmann and Entwistle & Cappucci. Alibaba’s action occurred in the Southern District of New York and was led by The Rosen Law Firm.
“While 2019 was not as rich as 2018 in terms of overall settlement value, the settled cases represented a significant victory for shareholders,” said Ivar Eilertsen, Head of ISS Securities Class Action Services.
While 2019 was a relatively slow year in terms of overall settlement value, the U.S. securities class action sector will likely be more active during 2020. Two major actions are close to reaching a settlement, one with Valeant Pharmaceuticals International, Inc. for $1.2 billion and a second with American Realty Capital Properties for $1 billion.
Additionally, other large tentative settlements with a high likelihood to be finalized in 2020 include First Solar, Inc. at $350 million, SCANA Corporation at $192.5 million, and Snap, Inc. at $187.5 million. — Jeffrey Lubitz, Executive Director, & Mark Lloyd Flores, Vice President, ISS Securities Class Action Services