2006: A Year of Multi-Billion-Dollar Shareholder Settlements

The average shareholder class action settlement jumped 37% to 86.7 million in 2006, driven by more "mega-settlements" exceeding $100 million - including four multi-billion-dollar settlements of 2006 ($2.7 billion AOL Time Warner; $1.1 billion Royal Ahold NV; $1.1 billion Nortel Networks' two settlements), according to NERA Economic Consulting study. 

Other key findings of the NERA study include: 

  • 36%: Projected decline in shareholder class action filings in 2006, despite some 22 lawsuits in 2006 over the issue of options backdating. 
  • 135: Expected total number of federal shareholder class actions in 2006, compared to 211 filings in 2005.
  • 8%: Probability of the average corporation being the target of at least one shareholder class suit over a five-year period
  • 38%: Percentage dismissed class action cases that were filed between 1999 and 2004. 
  • Seven of the ten largest settlements occurred between 2005 and 2006. Enron's $7.1 billion partial settlement exceeds last year's record-setting $6.2 billion WorldCom settlement, which dwarfed the mammoth $3.6 billion Cendant settlement in 2000.
  • More than 10% of shareholder class action settlements were "mega-settlements" of over $100 million, in contrast with an average of 3% reaching this threshold in prior years.
  • Median settlements continued to rise in 2006, hitting a new peak of $7.3 million.
  • Settlements increase by approximately one-third if an IPO is involved.

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