About Cornerstone Research

For more than 25 years, Cornerstone Research staff have provided economic and financial analysis and expert testimony in all phases of complex litigation and regulatory proceedings. The firm’s industry-leading research is recognized for its innovative reporting on securities class actions and modeling of settlement outcomes. Cornerstone Research staff have expertise in trade execution and pricing, risk management, market microstructure, public and private equity and fixed income, structured finance, and derivatives.

Cornerstone Research has 450 staff and offices in Boston, Chicago, Los Angeles, Menlo Park, New York, San Francisco, and Washington.

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New York—A new report by Cornerstone Research in conjunction with Latham & Watkins LLP provides a first-ever comprehensive analysis of the characteristics of opt-out securities cases. In these cases, at least one putative class member excludes itself from the class in order to pursue a separate lawsuit against the defendant. Not surprisingly, plaintiffs are more likely to bring opt-out cases stemming from larger class action settlements. About 53 percent of class actions with class settlements of at least $500 million had at least one related opt-out case, compared with 3 percent of all class action settlements.

“This paper sheds new light on the prevalence of opt-out cases from securities class actions,” said Adel Turki, a senior vice president of Cornerstone Research and head of the firm’s finance practice. “While opt-outs are still infrequent, the large impact they can have on class action cases should not be ignored.”

Opt-out settlement plaintiffs received an average of 12.5 percent of the value of the class action settlement and in some cases more than 20 percent. Pension funds and other institutional investors file the majority of opt-out cases.

Christopher Harris, a securities litigation partner from Latham & Watkins, noted, “One of the most interesting findings is that the bulk of opt-out settlements involved pension funds, who are trying (sometimes unsuccessfully) to increase their own payouts, but may be jeopardizing the ability of other investors to reach a settlement. Defendants may need to consider the likelihood of opt-out cases particularly in cases where a large portion of the shares are held by pension funds.”

Key Findings

  • Out of 1,272 securities class action settlements between January 1, 1996, and December 31, 2011, the report identified 38 cases in which at least one plaintiff opted out of the class action settlement and pursued a separate case against the defendant. The authors obtained opt-out settlement amount information in 21 of these 38 cases.
  • In cases with opt-outs, opt-out settlement plaintiffs received an average of 12.5 percent of the value of the class action settlement and a median of 3.8 percent.
  • The report identified six cases, the last of which settled in 2006, in which opt-out settlements exceeded 20 percent of the class action settlement value.
  • The report found seven cases with opt-out settlements above $10 million, all related to class actions that settled between November 2004 and November 2007.