EXHIBIT - Welcome - Strategic Claims Services · 8:10-cv-00199-JFB-TDT Doc # 120-4 Filed: 09/25/12 Page 9 of 44 - Page ID # 1919. 7 New filings in 2012 also represent a larger total

EXHIBIT 4

8:10-cv-00199-JFB-TDT Doc # 120-4 Filed: 09/25/12 Page 1 of 44 - Page ID # 1911

Recent Trends in Securities Class Action Litigation: 2012 Mid-Year ReviewSettlements bigger, but fewer

By Dr. Renzo Comolli, Dr. Ron Miller, Dr. John Montgomery, and Svetlana Starykh

24 July 2012


The pace of “standard” filings and the total value of potential claims are rising compared with the last three years.


www.nera.com 1

Recent Trends in Securities Class Action Litigation: 2012 Mid-Year Review Settlements bigger, but fewer

By Dr. Renzo Comolli, Dr. Ron Miller, Dr. John Montgomery, and Svetlana Starykh

24 July 2012

Mid-2012 Highlights in Filings

• Filingsontracktobeashighorhigherthaninanyofthelastthreeyears

• Mergerobjectionsuitscontinuetobealargeproportionoffilings

• Nonewfilingswithaccountingcodefendants

New Analysis of Motions

• Ofthecasesthatsettled,90%hadamotiontodismissfiledand42%hadmotionforclasscertificationfiled

• Settlementsamountsdependonthelitigationstageatwhichsettlementisreached

Mid-2012 Highlights in Settlements

• Settlementpaceslowingdownmarkedly

• Averagesettlementamountsreboundtolevelsclosetotheall-timehigh


2 www.nera.com

Introduction and Summary1

SecuritiesclassactionsfiledinFederalcourthavecontinuedtobefiledattheirhistoricalpacesofar

in2012,buttheircompositionhaschangedsignificantly.Lastyear,awaveoffilingsagainstChinese

companies,ofteninvolvingreversemergers,madethenews.Thisyear,thosecaseshavegreatly

decreasedinnumber.Mergerobjectioncasescontinuetobeamajorportionoftotalfilings,astheyhave

since 2010.

Thetargetsoflitigationhavebeenchanging.Financialsectorfirms’shareoffilingsin2012issmallerthan

ithasbeensince2005whilefilingsinthetechnologyandhealthcaresectorshaverisen.Accounting

firmshadfrequentlybeennamedascodefendantsinsecuritiesclassactionsinthepastandhadfigured

prominentlyinsomeofthelargestsettlements.However,since2010therehavebeenrelativelyfew

accountingfirmsnamedandsofarthisyeartherehavebeennoneatall.

Whilefilingshavecontinuedattheirtypicalrate,settlementshavenotkeptpace.Therateofsettlements

thisyearisontracktomake2012theslowestyearforsettlementactivitysince1999andmanyofthe

settlementsthathavebeenreacheddonotincludemonetarycompensationforinvestors.

Althoughthenumberofcasessettledthisyearislow,thecasesthathavesettledarerelativelybig

ones.Theaveragesettlementvalueismorethandoublelastyear’slevelandhigherthantherecent

historical average.

Wealsoreportnewly-compiledstatisticsonthesettlementvaluebystatusofthemotionsfiledinthose

cases.Amongotherthings,wefindthatmostsettlementsoccurafteramotiontodismisshasbeenfiled

butbeforeamotionforclasscertificationhasbeendecided.


www.nera.com 3

Figure 1. Federal Filings January 1996 – June 2012

133

202

276240 236

200

276238 254

188

132

196

244208

232 224

116

311

3

0

50

100

150

200

250

300

350

400

450

500

550

Nu

mb

er o

f Fed

eral

Fili

ng

s

Cases, Excluding IPO Laddering

IPO Laddering Cases

Projected 2H 2012

1996 - 2011 Average Cases, Excluding IPO Laddering: 217

232

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Trends in Filings2

Rate of Filings Federalfilingsofsecuritiesclassactionsarekeepingupwiththeaveragepacesincethepassageofthe

PrivateSecuritiesLitigationReformAct(PSLRA)in1995.Inthefirsthalfofthisyear,116suchactions

werefiled.Atthispace,therewillbe232classactionsfiledin2012asawhole;forcomparison,on

average,217classactionswerefiledannually,between1996and2011.3Althoughthenumberofclass

actionssince1996hasfluctuatedfromyeartoyear,thelonger-termaveragehasremainedsubstantially

stableovertime.SeeFigure1.


4 www.nera.com

Figure 2. Federal Filings and Number of Companies Listed in United States January 1996 – June 2012

133

202

276240 236

200

276238 254

188

132

196

244208

232 224

116

8,884

7,289

6,757

8,7838,448

8,2007,994

6,154 6,097 6,029 6,005 5,936

5,401 5,262 5,118 5,001 4,992

0

50

100

150

200

250

300

350

400

450

500

550

Nu

mb

er o

f Fed

eral

Fili

ng

s

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Nu

mb

er o

f Co

mp

anie

s Li

sted

in U

S

Cases, Excluding IPO Laddering

Projected 2H 2012

Listings

Note: Number of compamies listed in US is from Meridian Securities Markets.

232

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Incontrast,thenumberofcompanieslistedintheUShasdecreasedmarkedly,byabout43%since1996.

Thus,theaveragecompanylistedintheUSissignificantlymorelikelytobethetargetofasecuritiesclass

actionnowthanitwasin1996.SeeFigure2.


www.nera.com 5

Filings by Type Filingsforthefirsthalfof2012included26mergerobjectioncasesand83casesallegingtheviolation

ofatleastoneofthefollowing:Section10boftheSecuritiesandExchangeAct(includingRule10b-5),

Section11,orSection12oftheSecuritiesAct.Creditcrisiscasesarebecomingrarerastheeventsof

2008fadeintothepast.4Onlyfourcreditcrisis-relatedcaseshavebeenfiledsofarin2012.

SeeFigures3and4.

Figure 3. Federal Filings by Type of Case January 2005 – June 2012

182

100

135114

97118

148

86

27

9

1030

9

41102

58

34

71

12

9

15

23 62

26

188

132

196

244

208

232224

232

50

100

150

200

250

300

Nu

mb

er o

f Fed

eral

Fili

ng

s

Projected All Types 2H 2012

Merger Objection Cases

Cases Related to Credit Crisis

Ponzi Scheme Cases

Options Backdating Cases

Other Cases

2005 2006 2007 2008 2009 2010 2011 2012

Merger objection cases

Therecontinuedtobearelativelylargenumberofmergerandacquisitionobjectioncases(merger

objectioncases)inrecentyears.Mergerobjectioncasesfirstrepresentedanimportantcomponent

offederalfilingsin2010,whentheyamountedto31%offilings.Thesecasesarebroughtonbehalfof

shareholdersofatargetcompanyinamergeroracquisition,andtypicallyrestonallegationsthatthe

directorsofthetargetcompanybreachedtheirfiduciarydutytoshareholderseitherbyacceptingaprice

forthesharesthatwastooloworbyprovidinginsufficientdisclosuresaboutthevalueofthedeal.These

casesdifferinmanywaysfromthemoretraditionalsecuritiesclassactions,includinglegalaspects,

dismissalrates,settlementamounts,andthespeedwithwhichtheyaretypicallyresolved.Someof

these differences are discussed below.


6 www.nera.com

179

116

176

217

151130

150

83

0

50

100

150

200

250

Filing Year

Nu

mb

er o

f Fed

eral

Fili

ng

s

Projected 2H 2012

166

Figure 4. Federal Filings Alleging Violation of Any of: Rule 10b-5, Section 11, or Section 12 By Filing Year; January 2005 – June 2012

2005 2006 2007 2008 2009 2010 2011 2012

Themergerobjectioncasesdifferinanotherimportantwayfromotherrecentwavesofsecurities

litigationsuchasIPOladdering,optionsbackdating,creditcrisis-relatedcases,andChinesereverse

mergers.Togeneralize,theseearlierwavesoflitigationoriginatedwithparticularactions,oralleged

actions, of issuers that ended soon after the litigation began, either because of the litigation itself or

becauseoftheendoftheunderlyingissue.Becauseofthatquickendtothesourceofthelitigationissue,

adefinedpoolofcompaniesthatcouldbesuedwascreatedandthewaveendednaturallywhenthe

poolwasexhausted.Notsoforthemergerobjectioncases,wherethelitigatedissuescouldpotentially

relatetoanymergeroracquisition.Assuch,themergerobjectioncasesmaycontinueindefinitely,inthe

absenceofsubstantialchangesinthelegalenvironment,theirnumberfluctuatingwithmarketcyclesin

M&Aactivity.

ThedeclineinthenumberofcompanieslistedintheUS,discussedabove,maybecontributingtothe

shifttowardslesstraditionaltypesofsecuritiesclassactions,suchasmergerobjectioncases.The

reductionintraditionaltargetsmaygiveplaintiffs’firmsanincentivetoinnovateinthekindsofcasesthat

they bring.

Itisalsoworthnotingthatthemergerobjectioncasesdepictedinfigure3areonlythefederalsecurities

classactioncases.Manymoremergerobjectioncasesarefiledinstatecourtsorasderivativeactions.In

fact,almostthreetimesasmanydealshavebeenthetargetofstateclassactionsashavebeensubjectto

federal securities class actions.5

Rule 10b-5, Section 11, and Section 12

ClassactionsallegingviolationsofRule10b-5,Section11,and/orSection12historicallyhave

representedalargemajorityoffederalsecuritiesclassactionsfiledandaresometimesviewedasthe

“standard”typeofsecuritiesclassaction.6Figure4depictssuchcasesfortheperiod2005totoday.

These“standard”filingspeakedin2008withthecreditcrisis.Sofarthisyear,83suchsecuritiesclass

actionshavebeenfiled.Iffilingscontinueatthispace,bytheendoftheyear,166classactionswillhave

beenfiled—morethaninanyofthelastthreeyears,butwellbelowthe2008peak.


www.nera.com 7

Newfilingsin2012alsorepresentalargertotaldollarvolumeofpotentialclaimsthaninthelastfew

years.WegaugepotentialclaimswithNERA’sinvestorlossesmeasure.Thisisaproxyfortheaggregate

amountthatinvestorslostfrombuyingthedefendant’sstockduringtheclassperiodrelativetoinvesting

inthebroadermarket;itisalsoaroughproxyforthesizeofplaintiffs’potentialclaims.Aggregate

investorlossesaresimplytotalinvestorlossesacrossallcasesforwhichinvestorlossesarecomputed.7

Attheircurrentrateofaccumulation,aggregateinvestorlossesbytheendof2012wouldbelargerthan

thoseinanyofthepreviousthreeyears.SeeFigure5.Aggregateinvestorlossesareupnotonlybecause

thenumberofcaseshasgrownbutalsobecauseinvestorlossesforatypicalcasehasgrown.The

medianinvestorlossesinthefirstsixmonthsof2012havebeenmorethantwicethemedianinvestor

lossesin2010or2011.SeeFigure6.

Projected 2H 2012

Figure 5. Aggregate Investor Losses for Federal Filings with Alleged Violations of Rule 10b-5, Section 11, or Section 12 By Filing Year; January 2005 – June 2012

$212 $208

$320

$399

$199 $197

$244

$128

$0

$100

$200

$300

$400

Filing Year

$B

illio

n

$256

2005 2006 2007 2008 2009 2010 2011 2012


8 www.nera.com

$324$270

$400

$560 $561

$253 $247

$548

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

$550

$600

$650

Filing Year

$M

illio

n

2005 2006 2007 2008 2009 2010 2011 1H 2012

Figure 6. Median Investor Losses for Federal Filings with Alleged Violations of Rule 10b-5, Section 11, or Section 12 By Filing Year; January 2005 – June 2012


www.nera.com 9

Filings by Issuer’s Country of Domicile8

Lastyear,thebigstoryforsecuritiesclassactionfilingswasthewaveofcasesinvolvingChinese

companieslistedintheUS.Thiswaveoflitigationalsohasbeenreferredtoasthe“Chinesereverse

mergerlitigation”becauseofthewaymanysuchcompanieswerelistedintheUS.9

Thisyear,thenumberofthesecaseshasdroppeddramatically.Only10casesagainstChinese

companieslistedintheUShavebeenfiledsofarin2012,lessthanhalfofthe2011filingrate.SeeFigure

7.ThereducedpaceoffilingsagainstChinesecompanieshasatleasttwopotentialexplanations.First,

requirementsforlistingintheUSthroughthereversemergerprocesshavebeentightened.10 Second,

theflurryoffilingsagainstChinesecompaniesmayhavemadeUSlistingslessattractiveforChinese

companies,becauseofincreasedpotentiallegalcosts.

Figure 7. Number of Federal Filings Against Chinese Companies January 2008 – June 2012

41

10

31

71

1

7

3

5

0

5

10

15

20

25

30

35

40

45

Filing Year

Cases Against Chinese

Domiciled Companies

Cases Against Other

Companies with Principal

Executive O�ces in China

5

2

15

38

10

2008 2009 2010 2011 1H 2012


10 www.nera.com

1188

12

2

8

33

7

6

6

8

17

39

10

6

4

4

5

5

0

10

20

30

40

50

60

70

Filing Year

Nu

mb

er o

f Fed

eral

Fili

ng

sFigure 8. Filings by Company Domicile and Year January 2008 – June 2012

31

23

32

63

Note: Companies with principal executive o�ces in China are included in the totals for Asia.

23

Other

Asia

Canada

Europe

2008 2009 2010 2011 1H 2012

Figure 9. Foreign Domiciled Companies: Share of Filings and Share of All Companies Listed in United States January 2008 – June 2012

11.1%

28.1%

15.8%15.7%16.4% 16.4%

15.7%

19.8%

13.8%12.7%

0%

5%

10%

15%

20%

25%

30%

Filing Year

% of US Listings Represented by Foreign Domiciled Companies

% of US Filings against Foreign Domiciled Companies

Note: Companies with principal executive o�ces in China are included in the counts of foreign companies. Listings data are from Meridian Securities Markets. 2008 – 2011 data are as of respective year end, 2012 data are as of April.

2008 2009 2010 2011 1H 2012

Thenumberofcasesfiledagainstallforeign-domiciledcompaniesisdecreasingtoo,duetothedecrease

infilingsagainstChinesecompanies.SeeFigure8.WiththefallinfilingsagainstChineseissuers,the

rateofsecuritiesclassactionsfilingsagainstforeigncompanieslistedintheUShasnowrevertedtoa

levelonlyslightlyabovetherateforUScompanies.Inthefirsthalfof2012,theproportionofsecurities

classactionsinvolvingforeigncompanieswasapproximatelythesameastheproportionofforeign

companiesamongissuers.SeeFigure9.


www.nera.com 11

Filings by CircuitFilingsremainconcentratedintwocircuits:theSecond(encompassingNewYork,Connecticut,and

Vermont),andtheNinth(includingCalifornia,Washington,andcertainotherWesternstatesand

territories).However,inthefirsthalfof2012thebalancebetweenthesetwocircuitswassubstantially

differentfromthatinpreviousyears.

Duringthefirsthalfofthisyear,filingsintheSecondCircuithavebeenmadeatahigherpacethaninany

recentyearexcept2008.FilingsintheNinthCircuit,bycontrast,havedecreasedsubstantially.Attheir

currentpace,therewillbeonly30filingsintheNinthCircuitthisyear,whichwouldbethelowesttotal

sincethepassageofthePSLRAin1995.SeeFigure10.

Figure 10. Federal Filings by Circuit and Year January 2008 – June 2012

159

149

97

66

49

59

15161918

12 1013

915

1016

13

5

1312 1110

20

9 105

148

35

47

6761

7 85

9

1923

9 91 1 2

10

74

22

16

1012

14

8

30

1816

8915

4765

84

11

37

520

20

40

60

80

100

Circuit

Nu

mb

er o

f Fed

eral

Fili

ng

s

2008 2009 2010 2011

1H 2012

D.C. 1st 2nd 3rd 4th 5th 6th 7th 8th 9th 10th 11th

Projected 2H 2012


12 www.nera.com

Filings by SectorIn2008and2009,withthefalloutfromthecreditcrisis,filingsofsecuritiesclassactionsagainst

companiesinthefinancialsectorreachedapeak,amountingtonearlyhalfofallsecuritiesclassactions.

Theshareoffilingsagainstcompaniesinthefinancialsectorhasdeclinedsincethen.Thedecline

continuedinthefirsthalfofthisyear,inwhichfinancialcompaniesrepresentedonly11%ofissuerssubject

tosecuritiesclassactions.SeeFigure11.Thesefiguresrefertocompaniesnamedasprimarydefendants;

companiesinthefinancialsectoralsohavebeennamedascodefendants.Includingcodefendants,the

fractionofcasesinvolvingafinancialcompanyis19%,thelowestpercentagesinceatleast2005.See

Figure12.

Figure 11. Filings by Sector and Year January 2008 – June 2012

2008 2009 2010

2011 1H 2012

0%

10%

20%

30%

40%

50%

Note: This analysis is based on the FactSet Research Systems, Inc. economic sector classification. Some of the FactSet economic sectors are combined for presentation.

Comm

ercial a

nd Industri

al Serv

ices

Comm

unications

Consumer D

urables and N

on-Dura

bles

Consumer a

nd Distri

bution Serv

ices

Electronic Technolo

gy and Technology Serv

ices

Energy and N

on-Energ

y Min

erals

Finance

Health Technolo

gy and Services

Process In

dustries

Producer a

nd Oth

er Manufa

cturin

g

Retail T

rade

Transporta

tion and U

tiliti

es


www.nera.com 13

Theshareofsecuritiesclassactionswithadefendantintheelectronictechnologyandtechnology

servicesorhealthtechnologyandservicesindustrieshascontinuedtoincrease,reaching22%and23%,

respectively.Theshareofsecuritiesclassactionfilingsagainstissuersintheenergyandnon-energy

minerals sector also has grown.

Figure 12. Federal Cases in which Financial Institutions Are Named Defendants January 2005 – June 2012

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Filing Year

Per

cen

tag

e o

f Fed

eral

Fili

ng

s

Financial Institution is a Codefendant Only

Financial Institutions are a Primary Defendant and a Codefendant

Financial Institution is a Primary Defendant Only

15%11%

21%

33%28%

23%13%

8%

4%

13%

16%19%

7%

4%

3%

11%11%

24%

23% 23%

15%

16%

9%4%

30%26%

58%

72% 70%

45%

33%

20%

2008 2009 20102005 2006 2007 2011 1H 2012


14 www.nera.com

Accounting codefendants are becoming rare

Historically,asubstantialfractionofsecuritiesclassactionsincludedanaccountingfirmasacodefendant.

Over2005-2009,12%ofcaseshadaccountingcodefendants;during2010-2011,thatpercentagefell

to4%.Sofarthisyear,notasinglenewlyfiledfederalsecuritiesclassactionhasincludedanaccounting

codefendant.SeeFigure13.

Thisdramaticchangemaybetheresultofchangesinthelegalenvironment.TheSupremeCourt’s2011

decision in Januslimitedtheabilityofplaintiffstosuepartiesnotdirectlyresponsibleformisstatements.

Commentators have noted that, as a result of this decision, auditors may be liable only for statements

madeintheirauditopinion.11Further,thisdecisioncomesaftertheCourt’s2008decisioninStoneridge

limitingschemeliability.Thecumulativeeffectappearstohavemadeaccountingfirmsrelatively

unattractive targets for securities class action litigation.

Despitethevirtualdisappearanceofaccountingcodefendants,accountingallegationsagainstany

defendantarestillacommonfeatureinnewlyfiledcases;in2012,26%ofsecuritiesclassactionfilings

includedallegationsofaccountingviolations.Seeportionlabeled“Accounting”inFigure14.

Figure 13. Percentage of Federal Filings in Which an Accounting Firm is a Codefendant January 2005 – June 2012

2.6%

4.9%

0.0%

11.2%

12.9%11.7% 11.5%

12.5%

0%

2%

4%

6%

8%

10%

12%

14%

Filing Year

2008 2009 20102005 2006 2007 2011 1H 2012


www.nera.com 15

Figure 14. Allegations in Federal Filings January 2008 – June 2012

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

Accounting Breach ofFiduciary

Duty

Customer/VendorIssues

EarningsGuidance

Industry-Related

InsiderTrading

MergerIntegration

Issues

PonziScheme

FinancialProduct /

OperationalDefects

OtherProduct /

OperationalDefects

Other

Categories of Allegations

Per

cen

tag

e o

f Fili

ng

s

2008 2009 2010

2011 1H 2012

AllegationsNERAreviewscomplaintsinsecuritiesclassactionfilingstoevaluatetrendsinthetypesofallegationsthat

aremade.Figure14containsthepercentagesoffilingswithallegationsindifferentcategories.12

Sofarin2012,allegationsrelatedtoproductdefectsandoperationalshortcomings(otherthanfinancial)

havebeenthemostprevalent,havingbeenmadeinalmost45%ofcomplaints.Allegationsrelatedto

earningsguidance,breachoffiduciaryduty(typicalinthemergerobjectioncases),andaccountingwere

eachmadeinmorethanaquarterofthecomplaintsfiled.


16 www.nera.com

ThefractionofsecuritiesclassactionsallegingviolationsofRule10b-5thatalsoallegeinsidersaleshas

continued to decrease in 2012 and has reached a new low since we started tracking these data in 2005.13

Only14%oftheclassactionsallegingviolationsofRule10b-5haveallegedinsidersalesinthefirsthalfof

2012.SeeFigure15.

Figure 15. Percentage of Federal Filings Alleging Violations of Rule 10b-5 with Insider Sales Allegations By Filing Year; January 2005 – June 2012

21%

27%

18%

14%

50%

47%

52%

31%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

55%

Filing Year

2008 2009 20102005 2006 2007 2011 1H 2012


www.nera.com 17

Figure 16. Time to File Filings Alleging Violation of Rule 10b-5 January 2007 – June 2012

33

146

49

108114

224

30

188

27

152

49

107

0

30

60

90

120

150

180

210

240

270

300

330

360

Median Time to File (Days) Average Time to File (Days)

Nu

mb

er o

f Day

s

83%88%

67%

92%

75%

84%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

Percentage of Cases Filed within 1 Year

Per

cen

t of C

ases

File

d

2008 2009 2010 2011 1H 20122007

This analysis excludes cases where the alleged class period could not be unambiguously determined.

Time to FileForRule10b-5cases,wedefine“timetofile”asthetimefromtheendoftheallegedclassperiodtothe

dateoffilingofthefirstcomplaint.Theaveragetimetofilehasbeendecreasingsince2009.Inthefirst

halfof2012,ittook107days,onaverage,foracomplainttobefiled.Thisisdownfromahighof224days

in2009andfrom120daysin2011.SeeFigure16.

Themediantimetofilewas49daysinthefirsthalfof2012,meaningthathalfofthecomplaintswerefiled

within49days.Unliketheaveragetimetofile,themediantimetofileislongerthanin2011,whenitwas

only 27 days.


18 www.nera.com

Analysis of Motions

InanimportantadditiontoNERA’sanalysisofclassactions,wehavenowcollecteddataonmotions

andtheirresolutions,forfederalsecuritiesclassactionsfiledandsettledin2000orlater.14Specifically,

wehavecollecteddataonmotionstodismiss,motionsforclasscertification,andmotionsforsummary

judgment.Thesedataallownewinsightintotheprocessofthelitigationofsecuritiesclassactionsandthe

relationbetweendevelopmentsinlitigationandthesettlementthatisultimatelyreached.Inthissection

wereportonourfirstanalysisbasedonthestatusofmotions.

Motionstodismisshadatleastbeenfiledinthevastmajority—nearly90%—ofthecasesthatsettled:the

remainingcasessettledbeforeanysuchmotionhadbeenfiled.Inalmost22%ofcaseswhereamotionto

dismisshadbeenfiled,settlementwasreachedbeforethecourtreachedadecisiononthemotion.

Nextweturntotheresolutionsofthemotiontodismiss.Themostfrequentdecisiononthemotionto

dismisswasapartialgrant/partialdenial,at35%ofcasesfiled,followedbycompletedenialfor28%of

cases.Amotiontodismisswasgrantedin10%ofcasesthatultimatelysettled.15Itisimportanttonote

thatourdataonresolutionsarebasedonthestatusofthecaseatthetimeofsettlement—forexample,

somecasesthathavebeendismissedstillreachsettlement.Thesedismissalswerelikelyeitherwithout

prejudiceorunderappealatthetimeofsettlement;hadthesecasesnotsettled,therewasachancethe

caseswouldberefiledorthedismissalswouldbereversed.Asaresultofourfocusonsettledcases,our

datadonotincludethemanycaseswhichterminatedwithadismissal,withoutasettlement.SeeFigure

17 for more details.

Figure 17. Filing and Resolutions of Motions to Dismiss Cases Filed and Settled January 2000 – June 2012

Denied without Prejudice, 1.9%

Denied, 28.4%

Partially Granted / Partially Denied, 35.2%

Granted, 5.7%

Voluntarily Withdrawn, 3.1%

No Decision Prior to Settlement, 21.7%

Motion Was Filed, 89.8%

No Motion Was Filed, 10.2%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Motion to Dismiss Resolution of Motion to Dismiss (if Filed)

Per

cen

tag

e o

f Set

tlem

ents

Granted without Prejudice, 4.1%


www.nera.com 19

Figure 18. Filing and Resolutions of Motions for Class Certification Cases Filed and Settled January 2000 – June 2012

Denied without Prejudice, 3.4%Denied, 3.7%Partially Granted / Partially Denied, 3.4%

Granted, 41.8%





0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Per

cen

tag

e o

f Set

tlem

ents

Motion for Class Certification Resolution of Motion for Class Certification (if Filed)

Mostcasesthatsettledosobeforeamotionforclasscertificationisfiled—58%ofsettledcasesfallinto

thiscategory.Ofthesettledcasesforwhichamotionforclasscertificationhadbeenfiled,46%settled

beforethemotionwasresolved.Afurther45%ofthecaseswithaclasscertificationmotionendupwitha

certifiedclass.SeeFigure18formoredetails.

Figure 19. Time From Complaint Filing to Class Certification Decision Cases Filed and Settled January 2000 – June 2012

Less than 1 year, 5%

1-2 years, 32%

2-3 years, 36%

3-4 years, 14%

4-5 years, 7%

More than 5 years, 6%

While most cases reach settlement before

anydecisiononclasscertification,thecases

thatreachthispointprovideameasureofthe

overallspeedofthelegalprocess.Forthose

casesinwhichthemotionofclasscertification

was eventually decided, the decision came

withinthreeyearsoftheoriginalfiledateof

thecomplaintforalmostthreequartersofthe

cases.SeeFigure19.Itispossiblethat,with

theSupremeCourthavinggrantedcertiorari in

Amgen,thespeedwithwhichadecisiononthe

motionofclasscertificationisreachedwillslow

down, at least until Amgen is decided.


20 www.nera.com

Motionsforsummaryjudgmenthadbeenfiledbydefendantsinonly11%ofthecasesthatultimately

settled.SeeFigure20fordetailsontheoutcomeswhencasessettledafterdefendantsfiledsucha

motion.Averysmallnumberofmotionsforsummaryjudgmentwerefiledbyplaintiffs.

Figure 20. Filing and Resolutions of Defendants' Motions for Summary Judgment Cases Filed and Settled January 2000 – June 2012

Denied without Prejudice, 2.4%

Partially Granted / Partially Denied, 18.3%

Denied, 18.3%

Granted, 9.8%





0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Defendants' Motion for Summary Judgment Resolution of Defendants' Motionfor Summary Judgment (if Filed)

Per

cen

tag

e o

f Set

tlem

ents

Unsurprisingly,thestatusofmotionsatthetimeofsettlementsaffectstypicalsettlementvalues.

Forexample,forcasessettled2008through2012,themediansettlementvalueis$9.1million.Forcases

inwhichaclasswascertifiedatthetimeofsettlement,themediansettlementis$16.5million,overthe

sameperiod.Ingeneral,however,therelationshipbetweensettlementvaluesandmotionstatusatthe

timeofsettlementiscomplicated.Strategicconsiderationsforbothpartiestothelitigationcanhave

animportantinfluenceonthestageatwhichasettlementoccurs.Differentkindsofcasesarelikelyto

settleatdifferentpointsintheprocess,makingsimplecomparisonsacrossallcasesdifficult.Despitethis

difficulty,NERAresearchhasfoundthattherearestatisticallyrobustrelationshipsbetweenmotionstatus

andultimatesettlementvalues,whenothercasecharacteristicsaretakenintoaccount.Itisbeyondthe

scopeofthispapertoprovidedetailsonthisresearch.


www.nera.com 21

Trends in Case Resolutions

Thetypicalsecuritiesclassactiontakesseveralyearstoreachafinalresolution,andsometakeadecade

ormore.Onlyasmallfractionofsecuritiesclassactionsgototrial(seebelow),whilethelargemajority

of them are settled or dismissed.16

Toanalyzeresolutions,wefocusonannual“cohorts”ofcasesfiledindifferentyears.The2001cohort

isthemostrecentoneforwhichallcaseshavebeenresolved.Forthatcohort,35%ofcaseswere

ultimatelydismissedand65%ultimatelysettled.Forthenextfiveannualcohorts,spanningtheyears

2002-2006,morethan94%ofcaseshavebeenresolved.Resultsforthesemorerecentcohortsindicate

thatthedismissalratemaybeincreasing.Indeed,foreachannualcohortfrom2003to2006,the

dismissalratehasbeen43%ormore.Thesefigureswillultimatelychangesomewhat,becausesome

casesarenotyetresolvedandothercasesthathavebeendismissedmayseereversalsonappealorbe

filedagain(forcasesdismissedwithoutprejudice).Nonetheless,theevidencesofarsuggeststhatthese

more recent annual cohorts will ultimately see a higher dismissal rate than had been seen in earlier years.

SeeFigure21.

Alargerproportionofcasesinthe2007-2012cohortsawaitresolution.Itistooearlytoknowtheexact

dismissalrateforcasesfiledintheserecentyears.Thatsaid,thepreliminarydata,asshowninthechart,

suggest a continuing higher dismissal rate.

Figure 21. Status of Cases as Percentage of Federal Filings By Filing Year; January 2000 – June 2012

37% 35% 38%43% 43%

49%44% 43%

48% 48%

15%

1%

63% 65%59% 54%

52%49%

51%

42%

3% 3% 6%2% 5%

15%22%

38%

55%

84%

99%

37%

30%

14%

8%

1%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Filing Year

Dismissed Settled Pending

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Note: Analysis excludes IPO laddering, merger objection cases, and verdicts. Dismissals may include dismissals without prejudice and dismissals under appeal.


22 www.nera.com

Figure 22. Status of Cases as Percentage of Federal Filings By Year of Resolution; January 2000 – June 2012

Dismissed Settled

44%40% 43%

37%45%

41%44%

40% 40%

49% 52% 55% 53%

56%60% 57%

63%55%

59% 56%60% 60%

51% 48% 45% 47%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Year of Resolution

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Note: Analysis excludes IPO laddering, merger objection cases, and verdicts. Dismissals may include dismissals without prejudice and dismissals under appeal.

Analternatewaytolookatdismissalratesistoexaminethepercentageofcasesdismissedbyyearof

resolution,ratherthanyearoffilingasabove.Between2000andthefirsthalfof2012,dismissedcases

havebeenbetween37%and55%ofthecasesresolved.Thatpercentageis48%-55%in2009-2012,

subjecttothesamedisclaimersaboutdismissalswithoutprejudiceandpossibleappeals.SeeFigure22.

Theprecedingdiscussionofcaseresolutionsdoesnotincludetheresolutionofmergerobjectioncases.

Mergerobjectioncasesusuallyresolvequickly.Mergerobjectionsthatarefiledasfederalsecuritiesclass

actionstendtobevoluntarilydismissedrelativelyoftenbecauseplaintiffsoftenelecttoparticipateinthe

settlementofaparallelactionfiledinstatecourt.Ofthemergerobjectioncasesfiledasfederalsecurities

classactionssincethebeginningof2010,6%settled,34%werevoluntarilydismissedbecauseofthe

settlementinaparallelstateaction,21%weredismissed,and39%werependingasofJune30,2012.


www.nera.com 23

Trends in Settlements

Number of Settlements17

Settlementshavebeenproceedingatanunusuallyslowpacesofarthisyear.Ifthecurrentpacecontinues

forthewholeyear,settlementactivitywillbeatitslowestlevelsince1999,withonly98casessettled.

Theoverallnumberofsettlementsdidnotshowasignificantslowdownin2011:therewere123

settlementsin2011,whichisinlinewiththehistoricalaverage.However,closerexaminationreveals

thatsettlementactivityhadalreadystartedchangingdramaticallylastyear.Alargeportionofthe2011

settlementsinvolvedmergerobjectioncases.Settlementsareonemorerespectinwhichmerger

objectioncasesdifferfromothersecuritiesclassactions.Mergerobjectioncaseshavetypicallysettled

onlyforadditionaldisclosurestoinvestorsandfeestoplaintiffs’lawyers,withneithermonetary

compensationtoinvestorsnorchangestothetermsofmerger.Over2010-2012,89%ofmergerobjection

caseshavefallenintothiscategory.Ifweexcludesuchmergerobjectioncases,thenumberofsettlements

in2011wasthelowestsincethepassageofPSLRAin1995.

Inthefirstsixmonthsof2012,only31settlementsyieldedmonetarycompensationtoinvestors.If

settlementsweretocontinueatthispacefortherestoftheyear,thenbytheendof2012therewouldbe

evenfewersuchsettlementsthanin2011,settinganewpost-PSLRAlowrecord.SeeFigure23.

Figure 23. Number of Settlements By Settlement Year; January 1996 – June 2012

147134

11198

125 130122

129

110

141

109

148

111 110 109

87

3

9 619

36

18

0

20

40

60

80

100

120

140

160

Settlement Year

All Other Settlements

Merger Objection Settlements without Payment to Class or Changes to Terms of Merger

Projected 2H 2012

110

151

120116

128123

98

Note: Analysis excludes IPO laddering cases and settlements without details. Merger objection settlements with payment to class or changes to terms of the merger are included in

other settlements.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

31


24 www.nera.com

$8 $10 $13 $15

$39

$22 $25 $21

$70$79

$52

$41

$14

$106

$31

$71

$16

Figure 24. Average Settlement Value January 1996 – June 2012

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

$100

$110

Settlement Year

$M

illio

n

2005-2011 Average: $46

Note: Settlements include 309 IPO laddering cases in 2009. Settlements exclude merger objection cases.

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

Settlement AmountsTheaveragevalueofasettlementinthefirsthalfof2012was$71million,asharprisefromtheaverage

valueof$46millionovertheperiod2005-2011.18SeeFigure24.However,ahandfuloftheverylargest

settlementsofteninfluencestheannualaveragesettlement.Forthefirstsixmonthsof2012,theaverage

settlementvaluehasbeensubstantiallyincreasedbythe$1.01billionsettlementinIn Re American

International Group, Inc. Securities Litigation(“AIGsettlement”).TheAIGsettlementiscomposedoffour

tranches,threeofwhichhadbeenpreviouslyapprovedandthefourthofwhichwasapprovedthisyear.


www.nera.com 25

Figure25containsaveragesettlementsexcludingthoseabove$1billionandtheIPOladderingcases.

Undertheserestrictions(whichexcludetheAIGsettlement),thisyear’saveragesettlementamountis

$41million,reboundingfromlastyear’s$31milliontolevelsclosetotherecordlevelsof2009and2010.

Anotherwaytolookatthetypicalsettlementvalueistoexaminemediansettlements:mediansaremore

robust to extreme observations than are averages.19Themediansettlementamountinthefirstsixmonths

of2012was$7.9million,approximatelythesameasin2011andconsistentwithpre-creditcrisislevels.

SeeFigure26.

Sofarthisyear,therehavebeenfour“mega-settlements”over$100million—arecordhigh14%of

allsettlements.Mostsettlements,however,aremuchmoremodestthanthemega-settlementsthat

dominatethenews.Ofcasesthatsettledinthefirsthalfofthisyear,52%havesettledforlessthan

$10million.Thatpercentageisinlinewithhistoricalobservationssinceatleast2005(apartfrom2010).

SeeFigure27.

$8 $10$13 $15

$12

$16

$22$25

$21

$27$25

$30$32

$42 $41

$31

$41

Figure 25. Average Settlement Value, Excluding Settlements over $1 Billion January 1996 – June 2012

Note: Settlements exclude IPO laddering and merger objection cases. For list of excluded settlements over $1 billion see Table 1.

$0

$5

$10

$15

$20

$25

$30

$35

$40

$45

Settlement Year

$M

illio

n

2005-2011 Average: $32

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012


26 www.nera.com

$3.7$4.5

$6.5

$5.0 $4.9$4.5

$5.3$6.0

$5.4

$7.5$7.0

$8.2 $8.0

$9.0

$11.0

$7.5 $7.9

Figure 26. Median Settlement Value January 1996 – June 2012

Note: Settlements exclude IPO laddering and merger objection cases.

$0

$2

$4

$6

$8

$10

$12

Settlement Year

$M

illio

n

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

Figure 27. Distribution of Settlement Values January 2008 – June 2012


2008 2009 2010 2011 1H 2012

17%

13%

6%8%

52%

15%

4%

10%

29%

6%9%

55%

8%6%

52%

10%14%

55%

19%

41%

16%13%

17%

10%

14%

0%

Less Than $10 $10-$19.9 $20-$49.9 $50-$99.9 $100 or Greater

10%

20%

30%

40%

50%

60%

Size of Settlement Value ($Million)

Per

cen

tag

e o

f Set

tled

Cas

es


www.nera.com 27

Table1presentsthetop10securitiesclassactionsettlementsofalltime.TheAIGsettlementalready

appearedonourlistlastyear,butreachedfinalapprovalthisyearwiththeapprovalofthefourthtranche.

TheAIGsettlementisoneofonlytwosettlementsonthelistafter2008;theotherisEnron,whichonly

completelysettledin2010,thoughbothcasesarebasedonmucholderevents.

Table1. Top 10 Securities Class Action Settlements (As of June 30, 2012)

Ranking CompanySettlement

Year

TotalSettlementYear Value

($MM)

Settlements with Co-Defendants, if Any, that Were

Financial Institutions Accounting Firms

Value($MM) Percent

Value($MM) Percent

1 Enron Corp.1 2010 $7,242 $6,903 95% $73 1%

2 WorldCom, Inc.2 2005 $6,158 $6,004 98% $65 1%

3 Cendant Corp.3 2000 $3,692 $342 9% $467 13%

4 Tyco International, Ltd. 2007 $3,200 $0 0% $225 7%

5 AOL Time Warner Inc. 2006 $2,650 $0 0% $100 4%

6 Nortel Networks (I) 2006 $1,143 $0 0% $0 0%

7 Royal Ahold, NV 2006 $1,100 $0 0% $0 0%

8 Nortel Networks (II) 2006 $1,074 $0 0% $0 0%

9 McKesson HBOC Inc. 2008 $1,043 $10 1% $73 7%

10 American International Group, Inc. 2012 $1,010 $0 0% $98 10%

Total $28,311 $13,259 47% $1,099 4%

Notes: For this summary table only, tentative and partial settlements are included for comparison, and “Settlement Year” in this table represents the year in which the last settlement—whether partial or final—had the first fairness hearing. For partial tentative settlements “Settlement Year” is the year in which this settlement was announced.

1 The fairness hearing for the last tentative partial settlement, with Goldman Sachs, was held on February 4, 2010.

2 The settlement value incorporates a $1.6 million settlement in the MCI WorldCom TARGETS case.

3 The settlement value incorporates a $374 million settlement amount in the Cendant PRIDES I and PRIDES II cases. Settlement in the Cendant PRIDES I case was a non-cash settlement valued at $341.5 million. The settlement value also incorporates 50% of December 29, 2007 separate settlement of claims of Cendant and certain former HFS officers against E&Y. Under the terms of the Cendant Settlement, the Class is entitled to 50% of Cendant’s net recovery from E&Y. The additional recovery to the class is $131,750,000.


28 www.nera.com

Theaggregateamountofsettlementsapprovedinthefirstsixmonthsofthisyearexceeds$2billion.See

Figure28.Thisamountincludesjustover$1billionfortheAIGsettlement.Ifsettlementsweretocontinue

atthecurrentpacefortherestoftheyear,aggregatesettlementsbyyearendwouldbesubstantially

higherthanlastyear.Thisresult,though,islargelydrivenbytheAIGsettlement;ifweexcludeAIGand

extrapolateonlytheothersettlementstotheendoftheyear,thenbyyearendtheaggregatesettlements

couldbeaslowaslastyear.Inlargepart,thelowaggregatesettlementvaluetodatethisyearreflectsthe

small number of settlements as documented at the beginning of this section.

$1.1 $1.1 $1.4 $1.3

$4.5

$2.0$2.5

$3.1$2.3

$9.9

$8.5$7.5

$4.5

$5.6

$11.5

$2.6$2.2

Figure 28. Aggregate Settlement Value By Settlement Year; January 1996 – June 2012

$0

$2

$4

$6

$8

$10

$12

Settlement Year

$B

illio

n

$4.4

Projected 2H 2012

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Note: Settlements exclude Merger Objection cases. Excluding the 2010 Enron settlement, aggregate settlement value for that year was $4.3 billion.


www.nera.com 29

Investor Losses versus SettlementsHistorically,“investorlosses”havebeenapowerfulpredictorofsettlementsize.Asnotedabove,

NERA’sinvestorlossesvariableisaproxyfortheaggregateamountthatinvestorslostfrombuyingthe

defendant’sstockratherthaninvestinginthebroadermarketduringtheallegedclassperiod.Investor

lossescanexplainmorethanhalfofthevarianceinthesettlementvaluesinourdatabase.20

Ingeneral,settlementsizesgrowasinvestorlossesgrow,buttherelationshipisnotlinear.Inparticular,

settlementsizetendstoriselessthanproportionately,sosmallcasestypicallysettleforahigherfraction

ofinvestorlosses(i.e.,morecentsonthedollar)thanlargercases.Forexample,caseswithinvestorlosses

below$20milliononaveragesettlefor37.3%ofinvestorlosses,whilecaseswithinvestorlossesover

$10billionsettleforanaverageof2.2%percentofinvestorlosses.SeeFigure29.

Figure 29. Settlement Value as a Percentage of Investor Losses By Level of Investor Losses; January 1996 – June 2012

Less than $20

$20-$49

$50-$99

$100-$199

$200-$399

$400-$599

$600-$999

$1,000-$4,999

$5,000-$9,999

$10,000 or Greater

37.3%

2.2%

17.1%

1.1% 1.0% 0.7%

10.2%

7.4%

4.2%3.6%

2.6% 2.9%2.0% 2.0%

9.1%

4.9%3.5% 2.7% 1.8% 1.6%0%

5%

10%

15%

20%

25%

30%

35%

40%

Investor Losses ($Million)

Average Median

Notethattheinvestorlossesvariableisnotameasureofdamagessinceanystockthatunderperforms

theS&P500wouldhave“investorlosses”overtheperiodofunderperformance;ratheritisaroughproxy

fortherelativesizeofinvestors’potentialclaims.Thus,ourfindingsontheratioofsettlementtoinvestor

lossesshouldnotbeinterpretedastheshareofdamagesrecoveredinsettlementbutratherasthe

recoverycomparedtoaroughmeasureofthe“size”ofthecase.


30 www.nera.com

$64 $94 $119 $113$162 $172

$348

$215

$329 $338$398

$328 $339$389

$584$497

$1,179

Figure 30. Median Investor Losses and Median Ratio of Settlement to Investor Losses By Settlement Year; January 1996 – June 2012


7.0%

5.7%

4.9%4.7%

4.0%

3.5%

3.0% 3.0%

2.4%2.3%

2.0%

2.7%

2.2%2.5%

2.4%

1.2%

1.3%

$0

$200

$400

$600

$800

$1,000

$1,200

Settlement Year

Med

ian

Inve

sto

r Lo

sses

($M

illio

n)

0%

1%

2%

3%

4%

5%

6%

7%

8%

Med

ian

Rat

io o

f Set

tlem

ent t

o In

vest

or

Loss

es (%

)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

MedianinvestorlossesforsettledcaseshavebeensteadilyincreasingsincethepassageofthePSLRA,

from$64millionforsettlementsin1996to$497millionin2011.Theyappeartohaveskyrocketedin

thefirsthalfof2012,exceeding$1billion.However,thisfigureisbasedonarelativelysmallnumberof

settlementsandassuchmaynotrepresentatrendthatwillcontinuefortherestoftheyear.Themedian

ratioofsettlementtoinvestorlosseshasreachedanewpost-PSLRAlowat1.2%,butthatisunsurprising

giventhatinvestorlossesarehighand(asexplainedabove)settlementstypicallygrowlessthan

proportionallytoinvestorlosses.SeeFigure30.


www.nera.com 31

Plaintiffs’ Attorneys’ Fees and ExpensesThesettlementvaluesthatwereportincludeplaintiffs’attorneys’feesandexpensesinadditiontothe

amountsultimatelypaidtotheclass.InFigure31,feesandexpensesasaproportionofsettlementvalue

forsettlementsfinalizedfrom1996throughJune2012,excludingmergerobjectioncases,areshown.

Typically,theproportionofasettlementtakenbyfeesandexpensesdeclinesasthesettlementsizerises.

Forsettlementsbelow$5million,forexample,medianplaintiffs’attorneys’feesare33%ofthesettlement

amount;whileforsettlementsofover$500million,medianfeesfallto11%.Medianplaintiffexpense

ratiosfalloverthissettlementvaluerangeaswell,asseeninFigure31.

11.1%

22.4%

27.0%

30.0%30.0%

33.3%

1.4%1.8%2.7%3.7%5.3%

Figure 31. Median Plainti�s' Attorneys' Fees and Expenses, by Size of Settlement January 1996 – June 2012

Note: Analysis excludes merger objection cases.

0.5%0%

5%

10%

15%

20%

25%

30%

35%

< 5 ≥ 5 and < 10 ≥ 10 and < 25 ≥ 25 and < 100 ≥ 100 and < 500 ≥500

Settlement Value ($Million)

Per

cen

tag

e o

f Set

tlem

ent V

alu

e

Median Plainti�s' Attorneys' Fees

Median Plainti�s' Attorneys' Expenses

Wehavealsoanalyzedtrendsinplaintiffs’attorneys’feesovertime.Medianfeesforallsettlementsother

thanmergerobjectionscasesduringthefirsthalfofthisyearhaverepresented20%ofthesettlement

value—asmalldecreasesincelastyear.SeeFigure32.Thegeneraldownwardtimetrendinthefee

percentageisexplained,atleastinpart,bythefactthatcaseshavebeengettingbiggerovertime,and

that,asdocumentedabove,biggercasestypicallyhavelowerfeepercentages.


32 www.nera.com

30%

25%

30%

25% 25%

20%

25% 25%24%

21%22%

20%

30%

32%31%33%

30%

Figure 32. Median Plainti�s' Attorneys' Fees, by Year For Settlement Values Greater Than or Equal to $25M; January 1996 – June 2012

Note: Analysis excludes merger objection cases.

0%

5%

10%

15%

20%

25%

30%

35%

Settlement Year

Per

cen

tag

e o

f Set

tlem

ent V

alu

e

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

Wereportthefeesformergerobjectioncasesseparately.Forthemergerobjectioncasesthatsettledat

thefederallevelsince2005withnopaymenttoinvestors,plaintiffs’attorneys’feeshavebeenbelow$1

millionin68%ofthecases.SeeFigure33.Forthemergerobjectioncasesthatwerevoluntarilydismissed

becauseaparallelstateactionsettled,plaintiffs’attorneys’feesintheparallelstateactionhavebeen

below$1millionin71%ofthecases.

5%

27%

18% 18%

9% 9% 9%

18%

5%3%

22%

32%

14%11%

Figure 33. Distribution of Plainti�s' Attorneys' Fees and Expenses in Merger Objection Settlements With No Payment to Investors; January 2005 – June 2012

Note: Cases filed and settled January 2005 - June 2012. For merger objections voluntarily dismissed at federal level, attorneys’ fees and expenses refer to the settlement in the parallel state merger objection case, when such settlement exists.

0%

5%

10%

15%

20%

25%

30%

35%

Size of Attorneys' Fees and Expenses

Less Than $250,000 $250,000-$499,999 $500,000-$749,999 $750,000-$999,999 $1mil-$2.49mil $2.5mil-$4.99mil $5mil or Greater

Perc

enta

ge o

f Set

tlem

ents

Case Settled at Federal Level

Case Voluntarily Dismissed at Federal Level


www.nera.com 33

Figure 34. Aggregate Plainti�s' Attorneys' Fees and Expenses January 1996 – June 2012

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

$2,000

Settlement Year

Val

ue

($M

illi

on

)

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

$558

$828

$427

$1,130

$960

$1,579

$861

$1,146

$1,327

$535

$374

$58

$70

$52

$115

$84

$126

$84

$73

$106

$42

$40$297 $318

$374$319

$480

$944

$287 $308 $355 $293

$642$485

$45

$11 $11$19

$26

$49 $577

$828

$530$616

$692

$898

$1,218$1,245

$1,045

$1,704

$1,429

Agregate Plainti�s' Attorneys' Fees

Agregate Plainti�s' Attorneys' Expenses

Projected 2H 2012

Aggregateplaintiffs’attorneys’feesandexpensesforallfederalsettlementshavebeen$414millioninthe

firstsixmonthsofthisyear.SeeFigure34.Iffeesandexpensesweretocontinueatthispace,theywould

benoticeablyhigherthanlastyear,butstillthesecondlowestsince2004.Feesandexpensesforthe

firstsixmonthsofthisyearinclude$143millionfortheAIGsettlement.IftheAIGfeesandexpensesare

excluded,andiftheremainderweretocontinueatthesamepacefortherestoftheyear,aggregatefees

andexpensesfor2012wouldendupbeingsimilartotheaggregatelevelfor2011.

Thesefeesarecalculatedforfederalsecuritiesclassactionsonly.Assuch,theydonotincludefeesand

expensesformergerobjectioncasesfiledinstatecourtorasderivativeactions,whichmaybelucrative

forplaintiffs’lawfirms.OneexampleisIn Re Southern Peru Copper, a case in Delaware Chancery Court

thatyieldedawell-publicizedawardof$285milliontoplaintiffs’attorneys.


34 www.nera.com

Characteristics of Settled CasesOneofthepolicygoalsofthePSLRAwastoincreasetheparticipationofinstitutionsasleadplaintiffsin

securitiesclassactions,andinthatrespectithasbeenasuccess.Theproportionofsettledcaseswithan

institutionalleadplaintiffrosesharplybetween1996and2010,asdidthefractionofsuchsettlementsin

whichtheinstitutionalleadplaintiffwasapublicpensionplan,peakingat71%and40%,respectively.

Thetrendofincreasinginstitutionalparticipationappearstohaveleveledoffinthelasttwoorthreeyears.

Thefractionofleadplaintiffsthatarepublicpensionplanshasremainedatornear40%since2009.

Duringthefirsthalfof2012,thetotalfractionofinstitutionalleadplaintiffshasbeen65%—alittlebelow

the2009and2010levels.SeeFigure35.

NERA’sresearchonfactorsexplainingtheamountsforwhichcaseshavesettledhistoricallyfindsthat,

onaverage,institutionalleadplaintiffparticipationisassociatedwithlargersettlements.

Figure 35. Percentage of Settlements with an Institutional Lead Plainti� Cases Filed and Settled; January 1996 – June 2012

0% 4% 4% 5% 4%12% 8% 11% 10%

16%22% 22%

38% 40% 40% 40%

4% 10%17% 18%

17%19% 14%

29%

32%

38% 39%

33% 29%23% 25%

0%

9%13%

22% 22%

29% 27%24%

40%

47%

65%

22%

60% 62% 63%69%71%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Settlement Year

Public Pension Plan Plainti�

Other Institutional Lead Plainti�

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

A“blow-up”provisiontypicallypermitsasettlementtobeinvalidatedifmorethanacertainproportion

oftheclassoptsout.Theseprovisionshavebecomeanincreasinglycommonfeatureofsettlement

agreementsinrecentyears.In2012,theproportionofsettlementswithsuchprovisionsincreasedto

40%ofallsettlements,continuinganupwardtrend.SeeFigure36.


www.nera.com 35

Figure 36. Percentage of Settlements with a "Blow-Up" Provision (Settlements with Available Settlement Notice) Cases Filed and Settled; January 1996 – June 2012

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

0.0% 0.0%

16.7%

12.2%

17.4%

27.3%

16.0%

23.3%

28.8%

23.7%

21.4%

25.0%

28.2%

25.0%

40.0%

18.3%

39.5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Settlement Year

Figure 37. Percentage of Settled Cases with a Parallel Derivative Action Cases Filed and Settled; January 1997 – June 2012

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H 2012

Settlement Year

11.1%

26.1%

17.3%

25.6%

21.5%

29.7%

37.2%

47.4%

64.2%

56.4%

62.5%

55.8%

50.0%

62.4%

49.1%

23.1%

0%

10%

20%

30%

40%

50%

60%

70%

Note: We excluded cases filed and settled in 1996 because there was only one case and it had a derivative action.

“Tag-along”derivativeactionsassociatedwithsecuritiesclassactionshavebeenproliferatingover

thelasttenyears.Overtheperiod2007-2010,morethan60%ofsecuritiesclassactionshadparallel

derivativesuits.Thisyearandlast,thetrendtowardsuchderivativeactionsappearstohavereversed.In

2012,theproportionofcaseswithaparallelderivativeaction(amongthosethatsettled)hasdeclinedto

50%.SeeFigure37.


36 www.nera.com

Trials

Fewsecuritiesclassactionsproceedtotrial,thoughthosethatdotendtoattractagreatdealofattention.

Fewerstillgetallthewaytoaverdict.Soitisnotsurprisingthattherehavebeennotrialsorverdictssofar

in2012thatweknowof.SincethepassageofthePSLRAinlate1995,therehavebeenonly30securities

classactiontrials,ascomparedtoatotalofover3,909filings.Figure38summarizedthestatusofcases

thathavegonetotrialandTable2providesdetails.

Figure 38. Status of 30 Securities Class Actions That Went to Trial After PSLRA As of June 30, 2012

11

Verdict for Defendants

Verdict for Plainti�s

7

Mixed Verdict

5

6

Settled With at Least One Defendant During Trial

1

DefaultJudgment


www.nera.com 37

Table2. Thirty Securities Class Actions That Went to Trial after PSLRA

Case(1)

Federal Circuit(2)

File Year (3)

Trial Year1 (4)

I. Verdict for Defendants (11)

1 American Mutual Funds (Fee Litigation)2 9 2004 2009

2 American Pacific Corp.3 9 1993 1997

3 BankAtlantic Bancorp, Inc.4 11 2007 2011

4 Biogen Inc. 1 1994 1998

5 Everex Systems Inc.5 9 1992 2002

6 Garment Capitol Associates 2 1996 2000

7 Health Management, Inc. 2 1996 1999

8 JDS Uniphase Corp. 9 2002 2007

9 NAI Technologies, Inc. 2 1994 1996

10 Thane International, Inc.6 9 2003 2009

11 Tricord Systems, Inc. 8 1994 1997

II. Verdict for Plaintiffs (7)

1 Apollo Group, Inc.7 9 2004 2010

2 Claghorn / Scorpion Technologies, Inc. 9 1998 2002

3 Computer Associates International, Inc. 2 1991 2000

4 Helionetics, Inc. 9 1994 2000

5 Homestore.com, Inc.8 9 2001 2011

6 Real Estate Associates, LP 9 1998 2002

7 U.S. Banknote Corp.9 2 1994 1997

III. Mixed Verdict (5)

1 Clarent Corp.10 9 2001 2005

2 Digitran Systems, Inc.11 10 1993 1996

3 ICN Pharmaceuticals, Inc.12 2 1987 1996

4 Household International, Inc.13 7 2002 2009

5 Vivendi Universal, S.A.14 2 2002 2010

IV. Settled During Trial15 (6)

1 AT&T 3 2000 2004

2 First Union National Bank / First Union Securities / Cypres Funds 11 2000 2003

3 Globalstar Telecommunications, Ltd. 2 2001 2005

4 Heartland High-Yield / Short Duration High Yield Municipal Bond Funds 7 2000 2005

5 WorldCom 2 2002 2005

6 Safety-Kleen Corp. (Bondholders Litigation)16 4 2000 2005

V. Default Judgment (1)

1 Equisure Inc.17 8 1997 1998

Notes: Until otherwise noted, all these cases went to a jury trial. Data are from case dockets. Cases within each group presented in alphabetical order.


38 www.nera.com

Table 2 Notes Continued:

1 Trial Year shows the year in which the trial began or, when there are relevant post-trial developments (such as a ruling on an appeal or a re-trial), the most recent such development.

2 Judgment for defendants entered 12/28/09 after a 7/28/09-8/7/09 bench trial.

3 On 11/27/95 the US District Court granted in part the Company’s motion for summary judgment ruling that the Company had not violated the federal securities laws in relation to disclosure concerning the Company’s agreements with Thiokol. The remaining claims, which related to allegedly misleading or inadequate disclosures regarding Halotron, were the subject of a jury trial that began in December 1995 and ended on 1/17/96. The jury reached a unanimous verdict that neither the Company nor its directors and officers made misleading or inadequate statements regarding Halotron. Verdict was appealed, but on 6/5/97 affirmed by the 9th Circuit Court of Appeals.

4 On 11/18/10 the jury returned a verdict in the plaintiffs’ favor, finding seven of the statements to have been false, and awarding damages of $2.41 per share. On 4/25/11 the jury verdict was set aside by the court in a post-trial ruling. Judge opinion granted the defendants’ motion for judgment as a matter of law and indicated that she will enter judgment in defendants’ favor following remaining procedural issues.

5 1998 verdict for defendants was reversed and remanded by the 9th Circuit Court of Appeals; 2002 retrial again yielded a verdict for defendants.

6 On 6/10/05 bench trial verdict dismissed the case. Thereafter, plaintiffs filed a notice of appeal from the trial verdict in favor of the defendants. On 11/26/07, the US Court of Appeals of the 9th Circuit issued an Opinion reversing and remanding the action back to District Court with instructions to enter judgment in favor of the plaintiffs, to address loss causation, and to conduct further proceedings consistent with this opinion. On 12/5/08 the defendants filed a Motion for Judgment On Loss Causation and a Motion for Judgment On Lack Of Control Person Liability And Good Faith Defenses. On 3/17/09, the Court granted the defendants’ Motion for Judgment On Loss Causation but denied the Motion for Judgment On Lack Of Control Person Liability And Good Faith Defenses. Final Judgment on behalf of the defendants was entered on 3/25/09.

7 On 1/16/08 a federal jury found Apollo Group Inc. and certain former officers liable for securities fraud and ordered them to pay approximately $280 million to shareholders. On 8/8/08 the District Court overturned the jury verdict; Federal Judge James A. Teilborg’s order vacated the judgment and entered judgment in defendants’ favor. Following the dismissal, a notice of appeal was filed on 8/29/08. On 6/23/10 the United States Court of Appeals for the 9th Circuit reversed the District Court’s post-trial ruling and remanded the case with instructions that the District Court enter judgment in accordance with the jury’s verdict.

8 On 1/25/11, a civil jury trial commenced against the sole remaining defendant in the case – Stuart H. Wolff, the company’s former Chairman and CEO. On 2/24/11 a Central District of California rendered a verdict on behalf of plaintiffs. The jury found that the defendant, Stuart H. Wolff, had violated the federal securities laws in connection with a series of statements the company made in 2001. All other defendants had previously settled or been dismissed.

9 Judge subsequently vacated the jury verdict and approved a settlement.

10 Chairman of Clarent liable; Ernst & Young not liable.

11 A 9/30/96-10/24/96 jury trial resulted in a mixed verdict, with liability for Digitran Systems, Inc. and its former president, but not liable verdict for other individual defendants and the auditor, Grant Thornton.

12 Hung jury.

13 The jury found in favor of the defendants with respect to 23 of the alleged misstatements, but in favor of the plaintiffs with respect to 17 other statements.

14 The trial started 10/5/09. On 1/29/10 the jury returned a verdict against the company on all 57 of the plaintiffs’ claims. However, the jury also found that the two individual defendants, (former CEO Jean-Marie Messier and former CFO Guillaume Hannezo) were not liable.

15 At least one defendant settled after the trial began, but prior to judgment.

16 Some director-defendants settled during the trial. Default judgment against CEO and CFO who failed to show up for trial.

17 Default judgment against Equisure Inc. which failed to show up for trial.


www.nera.com 39

Notes

1 ThiseditionofNERA’sresearchonrecenttrendsinshareholderclassactionlitigationexpandsonpreviousworkbyourcolleaguesLucyAllen,ElaineBuckberg,FrederickC.Dunbar,ToddFoster,VinitaM.Juneja,DeniseNeumannMartin,JordanMilev,RobertPatton,StephaniePlancich,andDavidI.Tabak.Wegratefullyacknowledgetheircontributiontopreviouseditionsaswellasthiscurrentversion.TheauthorsalsothankLucyAllenforhelpfulcommentsonthisversion.Inaddition,wethankCarlosSoto,NicoleRoman,andotherresearchersinNERA’sSecuritiesandFinancePracticefortheirvaluableassistancewiththispaper.Theseindividualsreceivecreditforimprovingthispaper;allerrorsandomissionsareours.Dataforthisreportarecollectedfrommultiplesources,includingcomplaints,casedockets,RiskMetricsGroup/SecuritiesClassActionServices(SCAS),DowJonesFactiva,BloombergFinanceL.P.,FactSetResearchSystems,Inc.,SECfilings,andthe publicpress.

2 NERAtracksclassactionsfiledinfederalcourtandinvolvingallegedviolationsofthefederalsecuritieslaws.Ifmultiplesuchactions are filed against the same defendant, are related to the same allegations, and are in the same circuit, we treat them asasinglefiling.However,multipleactionsfiledindifferentcircuitsaretreatedasseparatefilings.Ifcasesfiledindifferentcircuits are consolidated, we revise our count to reflect that consolidation.Therefore,ourcountforaparticularyearmaychangeovertime.Differentassumptionsforconsolidatingfilings would likely lead to counts that are directionally similar but may, in certain circumstances, lead observers to draw a differentconclusionaboutshort-termtrendsinfilings.

3 ThisaverageexcludestheIPOladderingcases.

4 Wehaveclassifiedcasesascreditcrisis-relatedbasedontheallegationsinthecomplaint.Thecategoryincludescaseswithallegationsrelatedtosubprimemortgages,mortgage-backedsecurities, and auction rate securities, as well as some other casesallegedtoinvolvethecreditcrisis.Ourcategorizationisintendedtoprovideausefulpictureoftrendsinlitigationbutisnotbasedondetailedanalysisofanyparticularcase.

5 Thisfigurereferstodealsannouncedbetween2010and2011for$100millionormore,completedbyFebruary29,2012,withaUSpubliccompanyastarget,andchallengedbyDecember31,2011.DatafromaproprietaryNERAdatabase.

6 Themergerobjectioncasesformthelargestgroupoffederalsecurities class actions not involving such alleged violations.

7 Wedonotcomputeinvestorlossesforallcasesincludedin thispublication.Forinstance,classactionsinwhichbuyers of common stock are not alleged to have been damaged are not included.

8 Ournormalapproachtogeographicalclassificationistousethecountryofdomicilefortheissuingcompany.ManyofthedefendantChinesecompanies,however,obtainedtheirUSlistingthroughareversemergerand,consequently,reportaUSdomicile.Forthisreason,wehavealsotrackedcompanieswiththeirprincipalexecutiveofficesinChina.

9 Approximately63%oftheChinesecompaniestargetedbyasecuritiesclassactionintheperiod2010-2012werelistedintheUSthroughreversemergers.

10 See,forexample,XueqingLindaJiandHunterQiu, “Weighing Reverse Mergers for Private Chinese Cos,” Law360, June 25, 2012.

11 See,forexample,GwynQuillenandAmyJune,“ClarifyingAccountants’SecondaryLiability,”Law360,August8,2011.

12 InearliereditionsofNERA’s“RecentTrendsinSecuritiesClassActionLitigation,”wedisplayedthisinformationdifferently. Thepercentagecorrespondingtoeachcategoryisnowcomputedasthenumberofcomplaintsmakinganallegationinthatcategoryasapercentageofthetotalnumberofcomplaintsfiled;inearliereditions,itwascomputedasapercentageofthetotalnumberofallegationsinanycategory.Inotherwords,wehavechangedthedenominatorfromtotalnumberofallegationstototalnumberofcases.Thechangeinmethodologycanleadtodifferentresultsbecausecomplaintsoftenmakemultipleallegations.

13 WehaveupdatedthisanalysissothatthefractioniscomputedonlyovercasesallegingviolationofRule10b-5.

14 Cases for which investor losses cannot be calculated are excluded.ThelargestexcludedgroupsaretheIPOladderingcasesandthemergerobjectioncases.

15 Thus,itisnotthatonly10%ofcasesaredismissed;itisthat10%ofsettledcasesinwhichamotiontodismisshadbeenfiled, had been dismissed at the time of settlement.

16 Thedismissedcategoryincludesseveraloutcomes:caseswithgranted motion to dismiss granted, denied motion for class certification,grantedmotionforsummaryjudgmentfiledbydefendant, and cases that were voluntarily dismissed. Motions todismissthatareonlypartiallygrantedarenotincludedinthedismissed category.

17 Unlessotherwisenoted,tentativesettlements(thoseyettoreceivecourtapproval)andpartialsettlements(thosecoveringsomebutnotallnon-dismisseddefendants)arenotincludedinoursettlementstatistics.Wedefine“SettlementYear”asthe year of the first court hearing related to the fairness of the entiresettlementorthelastpartialsettlement.

18 Becausemergerobjectioncasestypicallysettlefornomonetarycompensationtoinvestors,weexcludeallmergerobjectionsettlementsfromtheanalysisofsettlementvalues.

19 Themediansettlementvalueforayearisthelevelthathalfofall settlements that year exceeded and half fell below.

20 Technically,theinvestorlossesvariableexplainsmorethanhalfofthevarianceinthelogarithmofsettlementsize.InvestorlossesovertheclassperiodaremeasuredrelativetotheS&P500,usingaproportionaldecaytradingmodeltoestimatethe number of affected shares of common stock. We measure investorlossesonlyiftheproposedclassperiodisatleasttwodays.Oursampleincludesmorethan1,000post-PSLRAsettlements.


About NERA

NERAEconomicConsulting(www.nera.com)isaglobalfirmofexpertsdedicatedtoapplying

economic,finance,andquantitativeprinciplestocomplexbusinessandlegalchallenges.Forhalf

acentury,NERA’seconomistshavebeencreatingstrategies,studies,reports,experttestimony,

andpolicyrecommendationsforgovernmentauthoritiesandtheworld’sleadinglawfirmsand

corporations.Webringacademicrigor,objectivity,andrealworldindustryexperiencetobearon

issuesarisingfromcompetition,regulation,publicpolicy,strategy,finance,andlitigation.

NERA’sclientsvalueourabilitytoapplyandcommunicatestate-of-the-artapproachesclearly

andconvincingly,ourcommitmenttodeliverunbiasedfindings,andourreputationforquality

andindependence.Ourclientsrelyontheintegrityandskillsofourunparalleledteamof

economistsandotherexpertsbackedbytheresourcesandreliabilityofoneoftheworld’slargest

economicconsultancies.WithitsmainofficeinNewYorkCity,NERAservesclientsfrommore

than20officesacrossNorthAmerica,Europe,andAsiaPacific.

Contacts Forfurtherinformation,pleasecontact:

Dr. Renzo Comolli

Senior Consultant

+12123456025

[email protected]

Dr. Ron Miller

Vice President

+12123453141

[email protected]

Dr. John Montgomery

Senior Vice President

+12123455411

[email protected]

The opinions expressed herein do not necessarily represent the views of NERA Economic Consulting

or any other NERA consultant.

Svetlana Starykh

Senior Consultant

+12123458931

[email protected]


Visit www.nera.com to learn

moreaboutourpracticeareas

andglobaloffices.

©Copyright2012

NationalEconomicResearch

Associates,Inc.

Allrightsreserved.

PrintedintheUSA.


Documents

EXHIBIT - Welcome - Strategic Claims Services · 8:10-cv-00199-JFB-TDT Doc # 120-4 Filed: 09/25/12 Page 9 of 44 - Page ID # 1919. 7 New filings in 2012 also represent a larger total