SECURITIES CORNER

In a recent report released by Cornerstone Research, it was revealed that nearly half of the securities class actions settled between 2019 and 2023 were associated with a parallel (“follow-on”) derivative claim that featured the same or similar underlying allegations. Additionally, nearly half of all federal derivative filings between this time were filed in either the District of Delaware, Southern District of New York, or Northern District of California.

In 2023, 92% of the settlements included a therapeutic provision (corporate governance reforms to deter future misconduct), while only 26% included a monetary component. Securities class actions with a follow-on derivative claim were typically associated with higher settlements ($14.5 million) than those without a follow-on derivative claim. The report further noted that derivative settlements with a monetary component were associated with higher securities class action settlements, maintaining the view that the monetary settlements correlated with the size or the strength of the underlying allegations. Such derivative claims had a median settlement of $8.9 million. Derivative settlements with a monetary component were more likely associated with an SEC action or criminal charges against the defendants or related parties in connection with the allegations covered by the underlying class action.

Additionally, attorney fee awards for monetary settlements and derivative settlements showed significant variations in 2023. The median plaintiff attorney fee award associated with the derivative settlements was approximately $800,000, while the median fee with a monetary settlement was $3 million. 

Between 2005 and 2023, there were 29 settlements of at least $50 million, 16 of which occurred after 2020. This trend of large derivative settlements may pave the way for other large derivative settlements and/or motivate filings in the coming years. As a result, companies facing securities lawsuits and underwriters writing these policies should be on notice of potential premium increases and exclusions for Directors and Officers coverage.