Pension Trust Fund For Operating Engineers v. DeVry Education Group, Inc. et al

Northern District of Illinois, ilnd-1:2016-cv-05198

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Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 1 of 27 PageID #:2708 Exhibit 3 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 2 of 27 PageID #:2708 Economic and Financial Consulting and Expert Testimony Securities Class Action Settlements 2018 Review and Analysis Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 3 of 27 PageID #:2708 Table of Contents Highlights 1 Author Commentary 2 Total Settlement Dollars 3 Settlement Size 4 Damages Estimates 5 Rule 10b-5 Claims: "Simplified Tiered Damages" 5 '33 Act Claims: "Simplified Statutory Damages" 7 Analysis of Settlement Characteristics 9 Accounting Allegations 9 Institutional Investors 10 Derivative Actions 11 Corresponding SEC Actions 12 Case Stage at the Time of Settlement 13 Time to Settlement and Case Complexity 14 Cornerstone Research's Settlement Prediction Analysis 15 Research Sample 16 Data Sources 16 Endnotes 17 Appendices 18 About the Authors 22 The views expressed in this report are solely those of the authors, who are responsible for the content, and do not necessarily represent the views of Cornerstone Research. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com i Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 4 of 27 PageID #:2708 Table of Figures and Appendices Figure 1: Settlement Statistics 1 Figure 2: Total Settlement Dollars 3 Figure 3: Distribution of Post–Reform Act Settlements 4 Figure 4: Median and Average "Simplified Tiered Damages" 5 Figure 5: Median Settlements as a Percentage of "Simplified Tiered Damages" by Damages Ranges 6 Figure 6: Settlements by Nature of Claims 7 Figure 7: Median Settlements as a Percentage of "Simplified Statutory Damages" by Damages Ranges 8 Figure 8: Median Settlements as a Percentage of "Simplified Tiered Damages" and Accounting Allegations 9 Figure 9: Median Settlement Dollars and Public Pension Plans 10 Figure 10: Frequency of Derivative Actions 11 Figure 11: Frequency of SEC Actions 12 Figure 12: Median Settlement Dollars and Resolution Stage at Time of Settlement 13 Figure 13: Median Settlement by Duration from Filing Date to Settlement Hearing Date 14 Appendix 1: Settlement Percentiles 18 Appendix 2: Select Industry Sectors 18 Appendix 3: Settlements by Federal Circuit Court 19 Appendix 4: Mega Settlements 19 Appendix 5: Median and Average Settlements as a Percentage of "Simplified Tiered Damages" 20 Appendix 6: Median and Average Maximum Dollar Loss (MDL) 20 Appendix 7: Median and Average Disclosure Dollar Loss (DDL) 21 Appendix 8: Median Docket Entries by "Simplified Tiered Damages" Range 21 Analyses in this report are based on 1,775 securities class actions filed after passage of the Private Securities Litigation Reform Act of 1995 (Reform Act) and settled from 1996 through year-end 2018. See page 16 for a detailed description of the research sample. For purposes of this report and related research, a settlement refers to a negotiated agreement between the parties to a securities class action that is publicly announced to potential class members by means of a settlement notice. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com ii Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 5 of 27 PageID #:2708 Highlights Propelled by mega settlements of $100 million or higher, total settlement dollars rose to just above $5 billion in 2018. This was the third-highest total in the prior 10 years. An increase in midsized settlements between $10 million and $50 million also contributed to the increased total value of settlements. • There were 78 securities class action settlements • The median settlement as a percentage of "simplified approved in 2018—only slightly fewer than the number tiered damages" in 2018 was 6.0 percent—higher than of settlements approved in 2017. (page 1) the median of 5.1 percent over the prior nine years. (page 6) • Total settlement dollars increased substantially over the 2017 near-historic low to just over $5 billion, which was • Compared to defendant firms involved in cases settled 50 percent higher than the average for the prior nine in 2017, defendant firms in 2018 settlements were years. (page 3) roughly 50 percent larger, as measured by median total assets. (page 5) • There were five mega settlements (settlements equal to or greater than $100 million) in 2018. (page 4) • During 2014–2018, the median settlement for cases that settled before a ruling on a motion for class • Compared to the historically low levels in 2017, in 2018 certification was $12.6 million, compared to the average settlement amount more than tripled to $18.0 million for cases that settled after such a ruling. $64.9 million, while the median settlement amount (page 13) (representing the typical case) more than doubled to $11.3 million. (page 1) • Among 2018 settled cases, the average time to reach a ruling on a motion for class certification was 4.8 years. • For 2018 cases with Rule 10b-5 claims, when compared (page 13) to 2017 results, average "simplified tiered damages" rose 45 percent to $687 million, while median "simplified tiered damages" rose 88 percent to $250 million. (page 5) Figure 1: Settlement Statistics (Dollars in millions) 1996–2017 2017 2018 Number of Settlements 1,697 81 78 Total $96,982.2 $1,511.1 $5,064.3 Minimum $0.2 $0.5 $0.4 Median $8.6 $5.1 $11.3 Average $57.1 $18.7 $64.9 Maximum $9,008.9 $215.1 $3,000.0 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. Figure 1 includes all post–Reform Act settlements. Settlements during 1996–2017 include 13 cases each exceeding $1 billion—adjusted for inflation, these settlements drive up the average settlement amount. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 1 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 6 of 27 PageID #:2708 Author Commentary 2018 Findings What is striking in 2018 is the dramatic In this section we provide our perspective on the increase in increase in average and median the 2018 median settlement amount, both in dollars and as a percentage of our simplified proxy for plaintiff-style settlement amounts despite a drop in a damages. number of factors typically associated While there are important determinants of settlement with higher settlements. amounts that we are unable to observe, such as case merits, we collect and analyze publicly available data in an effort to Dr. Laura E. Simmons represent underlying constructs relevant to settlement Senior Advisor Cornerstone Research determination. These determinants include the strength of the case, potential damages alleged by plaintiffs, resources available to fund the settlement from named defendants and/or their insurers, as well as other factors that may affect Recent Developments the settlement negotiation process. Recent data on case filings can provide insights into potential Over the years, we have identified a number of factors that settlement trends. Specifically, record levels of market are associated with higher settlement amounts. The results capitalization losses reported for case filings in 2018 may in 2018 are unusual in that settlement amounts increased— suggest that large settlements will persist in upcoming years. even as a percentage of our simplified damages proxy— See Cornerstone Research's Securities Class Action Filings— despite a decrease in certain factors typically associated with 2018 Year in Review. 1 larger settlements. In addition, the emergence of event-driven securities case For example, relative to both the previous year (2017) and filings over the last couple of years has been widely the previous nine years (2009–2017), fewer cases settled in discussed. These cases have been described as driven by 2018 involved accounting allegations. Similarly, settlements adverse events such as "an explosion, a crash, [or] a mass also involved fewer public pension plan lead plaintiffs. These torts episode." 2 Some authors have associated such cases findings raise the question: what did cause the increase in with more rapid filings and the entrance of certain plaintiff settlement amounts in 2018? law firms lacking connections to institutional investors.3 Accordingly, we have investigated the development of trends One interesting finding in 2018 is that more than 14 percent related to these suits for case settlements in 2018. of settled cases involved an accompanying criminal action— the highest proportion over the last 10 years. Cases We observe that, overall, settlement amounts, our simplified associated with a criminal action generally settle for higher damages proxy, and defendant assets are all lower for cases amounts. in which the law firms associated with event-driven litigation serve as lead counsel. In addition, consistent with However, the answer appears to relate primarily to the expectations, cases in which they serve as lead counsel are potential resources available to fund the settlement. less likely to involve institutional investors as lead plaintiffs. Specifically, we study issuer defendant total assets as a proxy for both the resources available directly from the defendant, Given that securities cases take, on average, just over three- as well as potential Directors and Officers (D&O) insurance and-a-half years to resolve, such cases may have a greater coverage. In 2018, defendant firms in settled cases were impact on future settlement trends, and we will continue to 50 percent larger than in 2017, and over 20 percent larger investigate effects related to event-driven litigation in than over the prior five years. Similarly, both the proportions subsequent reports. of settlements involving delisted firms, as well as bankrupt —Laarni T. Bulan, Ellen M. Ryan, and Laura E. Simmons firms, were the lowest over the last decade. Taken together, this suggests that economic factors played an important role in the increase in settlement size in 2018. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 2 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 7 of 27 PageID #:2708 Total Settlement Dollars • The total value of settlements approved by courts in • The larger settlement amounts in 2018 were 2018 was just over $5 billion—more than three times accompanied by higher levels in our proxy for plaintiff- the total amount approved in 2017. style damages. (See page 5 for a discussion of damages estimates.) • The average settlement amount in 2018 was nearly $65 million, considerably higher than the $18.7 million average in 2017 and 44 percent higher than the average for the prior nine years. 2018 total settlement dollars surpassed • In addition, the 2018 median settlement of the prior nine-year average annual $11.3 million was more than double the 2017 median, total by 50 percent. indicating larger 2018 settlements overall. Figure 2: Total Settlement Dollars 2009–2018 (Dollars in billions) $6.3 $5.1 $5.1 $4.3 $3.8 $3.5 $3.2 $1.5 $1.5 $1.2 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 N=99 N=85 N=65 N=56 N=66 N=63 N=77 N=85 N=81 N=78 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. N refers to the number of observations. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 3 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 8 of 27 PageID #:2708 Settlement Size • There were five mega settlements in 2018, with • The median and average settlement amounts in 2018 settlements ranging from $110 million to $3 billion. were 31 percent and 14 percent higher than the median and average, respectively, for all prior post– Reform Act settlements. 32 cases settled for between • Contributing to the increase in median and average $10 million and $49 million in 2018, settlement amounts, the number of small settlements representing an approximate (amounts less than $5 million) declined by nearly 40 percent, from 40 cases in 2017 to 25 in 2018. 60 percent increase over 2017. Figure 3: Distribution of Post–Reform Act Settlements 1996–2018 (Dollars in millions) 32% 1996–2017 2017 27% 2018 23% 22% 21% 19% 17% 17% 16% 15% 14% 13% 12% 9% 9% 5% 5% 4% 2% 2% 3% 3% 2% 1% 2% 1% 1% 1% 0% 0% < $2 $2–$4 $5–$9 $10–$24 $25–$49 $50–$99 $100–$149 $150–$249 $250–$499 ш $500 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. Percentages may not sum to 100 percent due to rounding. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 4 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 9 of 27 PageID #:2708 Damages Estimates Rule 10b-5 Claims: "Simplified Tiered Damages" "Simplified tiered damages" uses simplifying assumptions to • "Simplified tiered damages" is correlated with stock estimate per-share damages and trading behavior. It market volatility at the time of a case filing. The rise in provides a measure of potential shareholder losses that median and average "simplified tiered damages" in allows for consistency across a large volume of cases, thus 2018 is consistent with increased stock market volatility enabling the identification and analysis of potential trends. 4 in 2015 and 2016, when more than half of cases that Cornerstone Research's prediction model finds this measure settled in 2018 were filed. to be the most important factor in predicting settlement • "Simplified tiered damages" is also generally correlated amounts. 5 However, this measure is not intended to with the length of the class period. For cases settled in represent actual economic losses borne by shareholders. 2018, the median class period length was over Determining any such losses for a given case requires more 13 percent longer than the median in 2017. in-depth economic analysis. • Higher "simplified tiered damages" are generally associated with larger issuer defendants (measured by Median "simplified tiered damages" total assets or market capitalization of the issuer). In 2018, the median issuer defendant total assets of increased 88 percent from 2017. $829 million was almost 50 percent larger than for cases settled in 2017. Figure 4: Median and Average "Simplified Tiered Damages" 2009–2018 (Dollars in millions) Median "Simplified Tiered Damages" $2,582 Average "Simplified Tiered Damages" $2,419 $2,170 $2,065 $858 $878 $880 $823 $687 $472 $340 $383 $230 $223 $198 $195 $199 $250 $182 $133 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: "Simplified tiered damages" are adjusted for inflation based on class period end dates. Damages are estimated for cases alleging a claim under Rule 10b-5 (whether alone or in addition to other claims). Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 5 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 10 of 27 PageID #:2708 Damages Estimates (continued) • Larger cases (cases with higher levels of the proxy for shareholder losses) typically settle for a smaller The median settlement as a percentage percentage of "simplified tiered damages." of "simplified tiered damages" • The median settlement as a percentage of "simplified increased for the third consecutive year. tiered damages" increased to 6.0 percent in 2018, compared to a median of 5.1 percent for the prior nine • As observed over the last decade, smaller cases years. typically settle more quickly. Cases with less than • For the smallest cases (measured by "simplified tiered $25 million in "simplified tiered damages" settled damages"), the median settlement as a percentage of within 2.9 years on average, compared to 4.5 years for "simplified tiered damages" decreased by more than cases with "simplified tiered damages" of greater than 50 percent, from 29 percent in 2017 to 14 percent in $500 million. 2018. Figure 5: Median Settlements as a Percentage of "Simplified Tiered Damages" by Damages Ranges 2009–2018 (Dollars in millions) 18.6% 2009–2017 2018 14.1% 9.9% 9.4% 7.6% 6.0% 5.0% 4.9% 5.1% 4.0% 3.9% 4.2% 3.7% 3.3% 2.7% 2.0% Less Than $25 $25–$74 $75–$149 $150–$249 $250–$499 $500–$999 > $1,000 Total Sample Note: Damages are estimated for cases alleging a claim under Rule 10b-5 (whether alone or in addition to other claims). Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 6 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 11 of 27 PageID #:2708 Damages Estimates (continued) '33 Act Claims: "Simplified Statutory Damages" • For cases involving only Section 11 and/or • In 2018, among settlements involving only '33 Act Section 12(a)(2) claims ('33 Act claims), shareholder claims, the median time to settlement was 2.3 years, losses are estimated using a model in which the compared to slightly more than three years for cases statutory loss is the difference between the statutory involving only Rule 10b-5 claims. purchase price and the statutory sales price, referred to • Median settlement amounts are substantially higher here as "simplified statutory damages." 6 Only the for cases involving both '33 Act claims and Rule 10b-5 offered shares are assumed to be eligible for damages. allegations than for those with only Rule 10b-5 claims. • "Simplified statutory damages" are typically smaller than "simplified tiered damages," reflecting differences in the methodologies used to estimate alleged inflation Eight cases involving only '33 Act per share, as well as differences in the shares eligible to be damaged (i.e., only offered shares are included). claims settled in 2018. Figure 6: Settlements by Nature of Claims 2009–2018 (Dollars in millions) Median Settlement as a Percentage of Number of Median Median "Simplified "Simplified Statutory Settlements Settlement Statutory Damages" Damages" Section 11 and/or 76 $5.2 $107.8 8.0% Section 12(a)(2) Only Median Settlement as a Percentage of Number of Median Median "Simplified "Simplified Tiered Settlements Settlement Tiered Damages" Damages" Both Rule 10b-5 and 127 $14.8 $339.6 5.8% Section 11 and/or Section 12(a)(2) Rule 10b-5 Only 537 $8.2 $203.9 4.6% Note: Settlement dollars and damages are adjusted for inflation; 2018 dollar equivalent figures are used. Damages are adjusted for inflation based on class period end dates. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 7 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 12 of 27 PageID #:2708 Damages Estimates (continued) • Similar to cases with Rule 10b-5 claims, settlements as a percentage of "simplified statutory damages" for cases 50 percent of cases with only '33 Act with only '33 Act claims are smaller for cases that have claims settled in 2018 were heard in larger estimated damages. state courts. • Since 2009, 85 percent of settled cases with only '33 Act claims had a named underwriter defendant. • As discussed in Securities Class Action Filings—2018 • Over the period 2009–2018, the average settlement as Year in Review, stand-alone '33 Act claim case filings a percentage of "simplified statutory damages" for were 45 percent higher in 2018 than the average over cases with a named underwriter defendant was the prior five years. These cases will likely reach 13.2 percent, compared to 5.9 percent for cases resolution within the next two to three years and may without a named underwriter defendant. contribute to an increase in the number of '33 Act claim settlements during those years. Figure 7: Median Settlements as a Percentage of "Simplified Statutory Damages" by Damages Ranges 2009–2018 (Dollars in millions) 13.3% 9.6% 8.4% 3.9% < $50 $50–$149 >= $150 Total Sample N=26 N=24 N=26 N=76 Note: N refers to the number of observations. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 8 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 13 of 27 PageID #:2708 Analysis of Settlement Characteristics Accounting Allegations This analysis examines three types of accounting issues • Among cases settled in 2018 with accounting-related among settled cases involving Rule 10b-5 claims: (1) alleged allegations, approximately 10 percent involved a named Generally Accepted Accounting Principles (GAAP) violations, auditor codefendant, essentially unchanged from 2017 (2) restatements, and (3) reported accounting irregularities.7 (10.2 percent). However, these proportions were For further details regarding settlements of accounting significantly lower than the average of 21.9 percent cases, see Cornerstone Research's annual report on over the prior eight years. Accounting Class Action Filings and Settlements. 8 • The infrequency of reported accounting irregularities • The proportion of settled cases alleging GAAP violations among settled cases averaged less than 2 percent from in 2018 was 45 percent, continuing a four-year decline 2015 to 2018, compared to almost 10 percent from from a high of 67 percent in 2014. 2009 to 2014. • Settled cases with restatements are generally associated with higher settlements as a percentage of "simplified tiered damages" compared to cases without The infrequency of reported accounting restatements. In 2018, the median settlement as a irregularities among settled cases percentage of "simplified tiered damages" was continued for the fourth straight year. 11.3 percent for cases with restatements, but 5.1 percent for cases without restatements. Figure 8: Median Settlements as a Percentage of "Simplified Tiered Damages" and Accounting Allegations 2009–2018 Accounting Irregularities 8.5% Restatement Alleged 7.1% GAAP Violations No 5.8% No Accounting Alleged No Irregularities GAAP Restatement Violations 4.6% 4.3% 4.0% N=407 N=257 N=221 N=443 N=45 N=619 Note: N refers to the number of observations. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 9 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 14 of 27 PageID #:2708 Analysis of Settlement Characteristics (continued) Institutional Investors • Institutional investors, including public pension plans (a subset of institutional investors), tend to be involved in The proportion of 2018 settlements larger cases, that is, cases with higher "simplified tiered with a public pension plan as lead damages." plaintiff was at its lowest level in the • Median "simplified tiered damages" for cases involving a public pension as a lead plaintiff in 2018 were last decade. $689 million compared to $213 million for cases without a public pension as a lead plaintiff. • In 2018, median total assets for issuer defendants in cases involving an institutional investor as a lead • While public pensions historically have tended to be plaintiff were $1.6 billion compared to $328 million for involved in cases with accounting-related allegations cases without institutional investor involvement. (i.e., alleged GAAP violations, restatements, and accounting irregularities), this was not true in 2018. Figure 9: Median Settlement Dollars and Public Pension Plans 2009–2018 (Dollars in millions) Public Pension Plan as Lead Plaintiff No Public Pension Plan as Lead Plaintiff Percentage of Settlements with Public Pension as Lead Plaintiff $26 $25 $24 $22 $20 $21 $20 $18 46% 44% 40% 41% $15 38% $14 37% 38% 34% $12 32% 28% $6 $6 $6 $5 $4 $4 $3 $3 $3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 10 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 15 of 27 PageID #:2708 Analysis of Settlement Characteristics (continued) Derivative Actions Derivative cases accompanying securities class actions are • The increase in the proportion of settled cases involving more frequently filed when corresponding securities class an accompanying derivative action is consistent with actions are relatively large or involve a financial restatement both the larger cases (measured by "simplified tiered or public pension plan lead plaintiff. damages") and the larger settlement amounts observed in 2018. - The median "simplified tiered damages" for cases The percentage of settled cases with with companion derivative actions was a public pension plan lead plaintiff $480 million, compared to $47 million for cases that also involved an accompanying without accompanying derivation actions. derivative action reached 77 percent - The median settlement amount for cases with companion derivative actions was $18 million, in 2018, its highest level in the last compared to $5 million for cases without 10 years. accompanying derivative actions. Figure 10: Frequency of Derivative Actions 2009–2018 Settlements without a Companion Derivative Action Settlements with a Companion Derivative Action 53 50 50 43 35 38 39 35 41 27 46 43 39 38 35 35 29 27 28 24 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 11 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 16 of 27 PageID #:2708 Analysis of Settlement Characteristics (continued) Corresponding SEC Actions Cases with a corresponding Securities and Exchange • Corresponding SEC actions are also frequently Commission (SEC) action related to the allegations are associated with distressed firms. For purposes of this typically associated with significantly higher settlement research, a distressed firm has either declared amounts and higher settlements as a percentage of bankruptcy or been delisted from a major U.S. "simplified tiered damages." 9 exchange prior to settlement. • The number of settled securities class actions with corresponding SEC actions has remained relatively stable over the last four years. At 54 percent, 2018 had one of the • Cases with corresponding SEC actions tend to involve highest rates of SEC actions among larger issuer defendants. For cases settled during distressed firms in the past decade. 2009–2018, the median total assets of issuer defendant firms at the time of settlement were $946 million for cases with corresponding SEC actions, compared to $653 million for cases without a corresponding SEC action. Figure 11: Frequency of SEC Actions 2009–2018 Settlements without a Corresponding SEC Action Settlements with a Corresponding SEC Action 77 62 69 64 58 62 53 58 53 45 22 23 19 16 17 16 11 13 10 7 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 12 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 17 of 27 PageID #:2708 Case Stage at the Time of Settlement In collaboration with Stanford Securities Litigation Analytics (SSLA), 10 we have analyzed settlements in relation to the The average time to reach a ruling on a stage in the litigation process at the time of settlement, motion for class certification among expanding on the stages analyzed in our prior reports. settlements in 2018 was 4.8 years. • In 2018, cases settled after a motion to dismiss was filed but prior to a ruling had a median settlement of • In the five-year period from 2014 to 2018, the median $7.9 million, significantly lower than for cases settled at settlement for cases settled after a motion for class later stages. certification was filed but prior to a ruling was • In addition, among 2018 settlements, median total $12.6 million, compared to $18 million for cases settled assets at the time of settlement were almost after a ruling. 100 percent larger for cases settled after a ruling on a • Over the same period, the median "simplified tiered motion to dismiss than for cases settled at earlier damages" for cases settled after a filing of a motion for stages. summary judgment was over four times the median for cases settled prior to such a motion being filed. This contributed to higher settlement amounts but lower settlements as a percentage of "simplified tiered damages" for cases settled at this stage. Figure 12: Median Settlement Dollars and Resolution Stage at Time of Settlement 2014–2018 (Dollars in millions) Median Settlement Dollars $36.5 Median Settlement as a Percentage of "Simplified Tiered Damages" $18.0 7.8% $17.0 $12.6 6.9% 4.7% 4.7% 4.4% 4.8% 4.5% $5.3 $5.5 $2.6 Before filing of MTD After filing of MTD, After ruling on MTD, After filing of CC, After ruling on CC, After filing of MSJ, After ruling on MSJ before ruling before filing of CC before ruling before filing of MSJ before ruling N=28 N=62 N=80 N=61 N=59 N=13 N=15 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. MTD refers to "motion to dismiss," CC refers to "class certification," and MSJ refers to "motion for summary judgment." This analysis is limited to cases alleging Rule 10b-5 claims. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 13 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 18 of 27 PageID #:2708 Time to Settlement and Case Complexity • In 2018, 21 percent of cases settled within two years of • While, on average, settled cases in 2018 reached filing, 12 percent higher than the prior five-year resolution more quickly than in prior years, almost average. 15 percent of cases took more than five years to settle in 2018 and settled for substantially higher amounts. • Cases that settle quickly tend to be smaller (measured Over 80 percent of these cases had accompanying by "simplified tiered damages" or total assets of the derivative actions, and median assets of the defendant issuer defendant). Rule 10b-5 cases settled in less than firms were more than twice as large as in other cases. two years in 2018 had median "simplified tiered damages" of $67 million, compared to a median of • For the period 2013–2018, cases settled within two $319 million for settlements that took more than two years of filing had higher attorney fees as a percentage years to be resolved. of the settlement fund than cases that took longer to settle. 11 The average time from filing to settlement in 2018 was 3.3 years. Figure 13: Median Settlement by Duration from Filing Date to Settlement Hearing Date 2009–2018 (Dollars in millions) $24.0 2009–2017 2018 $14.8 $14.7 $13.0 $11.8 $10.0 $9.0 $7.3 $3.5 $2.8 Less Than 2 Years 2–3 Years 3–4 Years 4–5 Years More Than 5 Years N=109 N=16 N=203 N=27 N=155 N=15 N=80 N=9 N=130 N=11 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. N refers to the number of observations. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 14 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 19 of 27 PageID #:2708 Cornerstone Research's Settlement Prediction Analysis This research applies regression analysis to examine the • Whether an outside auditor or underwriter was named relationships between settlement outcomes and certain as a codefendant security case characteristics. Regression analysis is employed • Whether Section 11 and/or Section 12(a) claims were to better understand and predict the total settlement alleged in addition to Rule 10b-5 claims amount, given the characteristics of a particular securities case. Regression analysis can also be applied to estimate the • Whether the issuer defendant was distressed probabilities associated with reaching alternative settlement • Whether a public pension was a lead plaintiff levels. It is also helpful in exploring hypothetical scenarios, including how the presence or absence of particular factors • Whether the plaintiffs alleged that securities other than affects predicted settlement amounts. common stock were damaged Regression analyses show that settlements were higher Determinants of when "simplified tiered damages," MDL, issuer defendant Settlement Outcomes asset size, the length of time the company has been public, Based on the research sample of post–Reform Act cases that or the number of docket entries were larger, or when settled through December 2018, the factors that were Section 11 and/or Section 12(a) claims were alleged in important determinants of settlement amounts included the addition to Rule 10b-5 claims. following: Settlements were also higher in cases involving financial • "Simplified tiered damages" restatements, a corresponding SEC action, a public pension involved as lead plaintiff, a third party such as an outside • Maximum Dollar Loss (MDL)—market capitalization auditor or underwriter was named as a codefendant, or change from its peak to post-disclosure value securities other than common stock were alleged to be • Most recently reported total assets of the issuer damaged. defendant firm Settlements were lower if the settlement occurred in 2012 • A measure of how long the issuer defendant has been a or later, or if the issuer was distressed. public company Almost 75 percent of the variation in settlement amounts • Number of entries on the lead case docket can be explained by the factors discussed above. • The year in which the settlement occurred • Whether a restatement of financials related to the alleged class period was announced • Whether there was a corresponding SEC action and/or criminal indictments/charges against the issuer, other defendants, or related parties Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 15 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 20 of 27 PageID #:2708 Research Sample Data Sources • The database used in this report contains cases alleging In addition to SCAS, data sources include Dow Jones Factiva, fraudulent inflation in the price of a corporation's Bloomberg, the Center for Research in Security Prices (CRSP) common stock (i.e., excluding cases with alleged classes at University of Chicago Booth School of Business, Standard of only bondholders, preferred stockholders, etc., and & Poor's Compustat, court filings and dockets, SEC registrant excluding cases alleging fraudulent depression in price filings, SEC litigation releases and administrative and merger and acquisition (M&A) cases). proceedings, LexisNexis, and public press. • The sample is limited to cases alleging Rule 10b-5, Section 11, and/or Section 12(a)(2) claims brought by purchasers of a corporation's common stock. These criteria are imposed to ensure data availability and to provide a relatively homogeneous set of cases in terms of the nature of the allegations. • The current sample includes 1,775 securities class actions filed after passage of the Reform Act (1995) and settled from 1996 through 2018. These settlements are identified based on a review of case activity collected by Securities Class Action Services LLC (SCAS). 12 • The designated settlement year, for purposes of this report, corresponds to the year in which the hearing to approve the settlement was held. 13 Cases involving multiple settlements are reflected in the year of the most recent partial settlement, provided certain conditions are met. 14 Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 16 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 21 of 27 PageID #:2708 Endnotes 1 See Securities Class Action Filings–2018 Year in Review, Cornerstone Research (2019), https://www.cornerstone.com/Publications/Reports/Securities-Class-Action-Filings-2018-Year-in-Review.pdf 2 See John C. Coffee Jr., "Securities Litigation in 2017: 'It Was the Best of Times, It Was the Worst of Times,'" CLS Blue Sky Blog, March 19, 2018, http://clsbluesky.law.columbia.edu/2018/03/19/securities-litigation-in-2017-it-was-the-best-of-times-it-was-the-worst-of-times/. 3 See Kevin LaCroix, "Scrutinizing Event-Driven Securities Litigation," D&O Diary, March 27, 2018, https://www.dandodiary.com/2018/03/articles/securities-litigation/scrutinizing-event-driven-securities-litigation/; John C. Coffee Jr., "Securities Litigation in 2017: 'It Was the Best of Times, It Was the Worst of Times,'" CLS Blue Sky Blog, March 19, 2018, http://clsbluesky.law.columbia.edu/2018/03/19/securities-litigation-in-2017-it-was-the-best-of-times-it-was-the-worst-of-times/. 4 The "simplified tiered damages" approach used for purposes of this settlement research does not examine the mix of information associated with the specific dates listed in the plan of allocation, but simply applies the stock price movements on those dates to an estimate of the "true value" of the stock during the alleged class period (or "value line"). This proxy for damages uses an estimate of the number of shares damaged based on reported trading volume and the number of shares outstanding. Specifically, reported trading volume is adjusted using volume reduction assumptions based on the exchange on which the issuer defendant's common stock is listed. No adjustments are made to the underlying float for institutional holdings, insider trades, or short-selling activity during the alleged class period. Because of these and other simplifying assumptions, the damages measures used in settlement outcome modeling may be overstated relative to damages estimates developed in conjunction with case-specific economic analysis. 5 See Laarni T. Bulan et al., Estimating Damages in Settlement Outcome Modeling, Cornerstone Research (2017), https://www.cornerstone.com/Publications/Research/Estimating-Damages-in-Settlement-Outcome-Modeling.pdf. 6 The statutory purchase price is the lesser of the security offering price or the security purchase price. Prior to the first complaint filing date, the statutory sales price is the price at which the security was sold. After the first complaint filing date, the statutory sales price is the greater of the security sales price or the security price on the first complaint filing date. Similar to "simplified tiered damages," the estimation of "simplified statutory damages" makes no adjustments to the underlying float for institutional holdings, insider trades, or short-selling activity. Shares subject to a lock-up period are not added to the float for purposes of this calculation. 7 The three categories of accounting issues analyzed in this report are: (1) GAAP violations—cases with allegations involving Generally Accepted Accounting Principles (GAAP); (2) restatements—cases involving a restatement (or announcement of a restatement) of financial statements; and (3) accounting irregularities—cases in which the defendant has reported the occurrence of accounting irregularities (intentional misstatements or omissions) in its financial statements. 8 See Accounting Class Action Filings and Settlements, Cornerstone Research (2018), https://www.cornerstone.com/Publications/Reports/2017-Accounting-Class-Action-Filings-and-Settlements.pdf. Update forthcoming in April 2019. 9 It could be that the merits in such cases are stronger, or simply that the presence of a corresponding SEC action provides plaintiffs with increased leverage when negotiating a settlement. For purposes of this research, an SEC action is evidenced by the presence of a litigation release or an administrative proceeding posted on www.sec.gov. 10 Stanford Securities Litigation Analytics (SSLA) tracks and collects data on private shareholder securities litigation and public enforcements brought by the SEC and the U.S. Department of Justice (DOJ). The SSLA dataset includes all traditional class actions, SEC actions, and DOJ criminal actions filed since 2000. Available on a subscription basis at https://sla.law.stanford.edu/. 11 Data provided by SSLA. 12 Available on a subscription basis. For further details see https://www.issgovernance.com/securities-class-action-services/. 13 Movements of partial settlements between years can cause differences in amounts reported for prior years from those presented in earlier reports. 14 This categorization is based on the timing of the settlement approval. If a new partial settlement equals or exceeds 50 percent of the then-current settlement fund amount, the entirety of the settlement amount is recategorized to reflect the settlement hearing date of the most recent partial settlement. If a subsequent partial settlement is less than 50 percent of the then-current total, the partial settlement is added to the total settlement amount and the settlement hearing date is left unchanged. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 17 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 22 of 27 PageID #:2708 Appendices Appendix 1: Settlement Percentiles (Dollars in millions) Average 10th 25th Median 75th 90th 2018 $64.9 $1.5 $3.6 $11.3 $24.8 $52.1 2017 $18.7 $1.5 $2.6 $5.1 $15.4 $35.3 2016 $73.8 $2.0 $4.4 $8.9 $34.5 $152.7 2015 $41.7 $1.4 $2.3 $6.9 $17.2 $99.6 2014 $19.3 $1.8 $3.0 $6.4 $14.0 $53.0 2013 $77.9 $2.0 $3.2 $7.0 $23.9 $88.9 2012 $67.0 $1.3 $2.9 $10.3 $38.8 $125.8 2011 $23.4 $2.1 $2.8 $6.4 $20.1 $46.6 2010 $41.1 $2.3 $4.9 $13.0 $28.8 $91.7 2009 $43.9 $2.8 $4.5 $9.4 $23.4 $77.7 1996–2018 $45.4 $1.7 $3.6 $8.6 $21.9 $75.1 Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. Appendix 2: Select Industry Sectors 2009–2018 (Dollars in millions) Median Settlement Median as a Percentage of Number of Median "Simplified Tiered "Simplified Tiered Industry Settlements Settlement Damages" Damages" Financial 111 $21.7 $452.8 4.8% Technology 108 $9.2 $217.9 5.1% Pharmaceuticals 91 $8.7 $251.5 3.9% Telecommunications 41 $8.6 $220.3 4.5% Retail 38 $6.6 $189.6 4.3% Healthcare 20 $8.2 $136.0 6.4% Note: Settlement dollars and "simplified tiered damages" are adjusted for inflation; 2018 dollar equivalent figures are used. "Simplified tiered damages" are calculated only for cases involving Rule 10b-5 claims. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 18 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 23 of 27 PageID #:2708 Appendices (continued) Appendix 3: Settlements by Federal Circuit Court 2009–2018 (Dollars in millions) Median Settlement Number of Median as a Percentage of Circuit Settlements Settlement "Simplified Tiered Damages" First 24 $7.1 3.4% Second 177 $11.4 4.7% Third 61 $7.0 4.6% Fourth 26 $12.5 3.2% Fifth 35 $8.9 4.5% Sixth 33 $13.0 7.4% Seventh 37 $10.3 4.4% Eighth 14 $11.7 5.9% Ninth 196 $8.3 5.1% Tenth 19 $8.8 4.8% Eleventh 36 $7.2 5.7% DC 4 $23.0 2.2% Note: Settlement dollars are adjusted for inflation; 2018 dollar equivalent figures are used. Settlements as a percentage of "simplified tiered damages" are calculated only for cases alleging Rule 10b-5 claims. Appendix 4: Mega Settlements 2009–2018 Total Mega Settlement Dollars as a Percentage of All Settlement Dollars Number of Mega Settlements as a Percentage of All Settlements 84% 81% 78% 73% 74% 73% 60% 41% 43% 34% 11% 10% 12% 9% 8% 9% 5% 5% 6% 3% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 19 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 24 of 27 PageID #:2708 Appendices (continued) Appendix 5: Median and Average Settlements as a Percentage of "Simplified Tiered Damages" 2009–2018 14.8% Median Settlement as a Percentage of "Simplified Tiered Damages" Average Settlement as a Percentage of "Simplified Tiered Damages" 11.4% 11.5% 11.6% 10.7% 9.4% 8.6% 8.5% 8.6% 6.8% 6.3% 6.0% 5.7% 4.9% 5.1% 4.9% 5.2% 4.5% 4.8% 4.2% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: "Simplified tiered damages" are calculated only for cases alleging Rule 10b-5 claims. Appendix 6: Median and Average Maximum Dollar Loss (MDL) 2009–2018 (Dollars in millions) Median MDL $12,226 Average MDL $9,956 $9,440 $8,765 $5,834 $4,299 $4,124 $3,546 $2,967 $1,782 $1,294 $1,252 $1,079 $1,013 $1,029 $983 $974 $818 $684 $537 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: MDL is adjusted for inflation based on class period end dates. MDL is the dollar value change in the defendant firm's market capitalization from the trading day with the highest market capitalization during the class period to the trading day immediately following the end of the class period. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 20 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 25 of 27 PageID #:2708 Appendices (continued) Appendix 7: Median and Average Disclosure Dollar Loss (DDL) 2009–2018 (Dollars in millions) Median DDL $1,585 Average DDL $1,451 $1,381 $739 $777 $620 $526 $426 $331 $300 $193 $170 $127 $107 $113 $94 $107 $85 $72 $92 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Note: DDL is adjusted for inflation based on class period end dates. DDL is the dollar value change in the defendant firm's market capitalization between the trading day immediately preceding the end of the class period and the trading day immediately following the end of the class period. This analysis excludes cases alleging '33 Act claims only. Appendix 8: Median Docket Entries by "Simplified Tiered Damages" Range 2009–2018 (Dollars in millions) 2009–2017 206 193 2018 161 151 147 128 121 107 106 101 < $50 $50–$99 $100–$249 $250–$499 > $500 Note: "Simplified tiered damages" are calculated only for cases alleging Rule 10b-5 claims. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 21 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 26 of 27 PageID #:2708 About the Authors Laarni T. Bulan Ph.D., Columbia University; M.Phil., Columbia University; B.S., University of the Philippines Laarni Bulan is a principal in Cornerstone Research's Boston office, where she specializes in finance. Her work has focused on securities damages and class certification issues, insider trading, merger valuation, risk management, market manipulation and trading behavior, and real estate markets. She has also consulted on cases related to financial institutions and the credit crisis, municipal bond mutual funds, asset-backed commercial paper conduits, credit default swaps, foreign exchange, and securities clearing and settlement. Dr. Bulan has published several academic articles in peer-reviewed journals. Her research covers topics in dividend policy, capital structure, executive compensation, corporate governance, and real options. Prior to joining Cornerstone Research, Dr. Bulan had a joint appointment at Brandeis University as an assistant professor of finance in its International Business School and in the economics department. Ellen M. Ryan M.B.A., American Graduate School of International Management; B.A., Saint Mary's College Ellen Ryan is a director in Cornerstone Research's Boston office, where she works in the securities practice. Ms. Ryan has consulted on economic and financial issues in a variety of cases, including securities class actions, financial institution breach of contract matters, and antitrust litigation. She also has worked with testifying witnesses in corporate governance and breach of fiduciary duty matters. Prior to joining Cornerstone Research, Ms. Ryan worked for Salomon Brothers in New York and Tokyo. Currently she focuses on post–Reform Act settlement research as well as general practice area business and research. Laura E. Simmons Ph.D., University of North Carolina at Chapel Hill; M.B.A., University of Houston; B.B.A., University of Texas at Austin Laura Simmons is a senior advisor with Cornerstone Research. She is a certified public accountant and has more than 25 years of experience in accounting practice and economic and financial consulting. Dr. Simmons has focused on damages and liability issues in securities litigation, as well as on accounting issues arising in a variety of complex commercial litigation matters. She has served as a testifying expert in cases involving accounting analyses, securities case damages, research on securities lawsuits, and other issues involving empirical analyses. Dr. Simmons's research on pre– and post–Reform Act securities litigation settlements has been published in a number of reports and is frequently cited in the public press and legal journals. She has spoken at various conferences and appeared as a guest on CNBC addressing the topic of securities case settlements. She has also published in academic journals, with recent research focusing on the intersection of accounting and litigation. Dr. Simmons was previously an accounting faculty member at the Mason School of Business at the College of William & Mary. From 1986 to 1991, she was an accountant with Price Waterhouse. The authors acknowledge the research efforts and significant contributions of their colleagues at Cornerstone Research. Securities Class Action Settlements—2018 Review and Analysis cornerstone.com 22 Case: 1:16-cv-05198 Document #: 146-3 Filed: 08/30/19 Page 27 of 27 PageID #:2708 Many publications quote, cite, or reproduce data, charts, or tables from Cornerstone Research reports. The authors request that you reference Cornerstone Research in any reprint, quotation, or citation of the charts, tables, or data reported in this study. Please direct any questions DQG UHTXHVWV IRU DGGLWLRQDO LQIRUPDWLRQ WR WKH VHWWOHPHQW GDWDEDVH DGPLQLVWUDWRU DW VHWWOHPHQW GDWDEDVH#FRUQHUVWRQH FRP Boston 617.927.3000 Chicago 312.345.7300 London +44.20.3655.0900 Los Angeles 213.553.2500 New York 212.605.5000 San Francisco 415.229.8100 Silicon Valley 650.853.1660 Washington 202.912.8900 www.cornerstone.com © 201 by Cornerstone Research. All rights reserved. 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