“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.”
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.