The Merits Matter Most: Observations on a Changing Landscape under the Private Securities Litigation Reform Act of 1995
I. The Merits Matter Enormously to the Size of Recovery in Securities Class Actions
Statistics varying all over the lot have been presented in the debate over the value of securities class actions and whether they genuinely compensate victims. Some say settlements represent in most instances less than 10% of damages. Others demonstrate numbers of over 25% up to 60% on average. Those pointing to the low percentages conclude that “the merits don’t matter” and imply or state that only the class action plaintiffs’ lawyers are well compensated. As a practitioner of more than twenty years in the field representing investors and investor classes, the merits matter enormously. As a participant in hundreds of settlement meetings, mediations and other conferences convened for the purpose of trying the resolve a securities class action, it is obvious that the merits not only matter, but are largely determinative of the size of a settlement, assuming an ability to fund a settlement.
Assuming a viable funding source (i.e. a solvent defendant and/or adequate insurance coverage), the most important factor affecting the size of the outcome is the strength of the factual claims. To properly analyze whether victims are being compensated reasonably in securities class actions, the most meaningful analysis is to look into the facts of the cases, not just statistics of results (settlement amounts) versus claimed damages. . . .