Legal Industry News

December 15, 2011

NERA Report: Class Action Suits against Chinese Companies Surge in 2011

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The pace of filings of class actions under federal securities and commodity laws held relatively steady in 2011 as compared to the previous three years, according to NERA Economic Consulting’s semi-annual report, Recent Trends in Securities Class Action Litigation: 2011 Year-End Review, released yesterday.

The report said that while shareholder filings continue to be filed at a relatively steady level as compared to the past three years, there has been a substantial shift in the composition of suits filed. A surge in cases involving Chinese companies listed in the US and in M&A objection suits, along with a waning of credit-crisis cases, has been driving this trend.

“NERA Trends authors project there will be 232 shareholder class action filings in 2011, broadly in line with levels observed in 2010 (241), in 2009 (218), and 2008 (245). Suits objecting to a merger or an acquisition have accounted for 29 percent of filings so far in 2011, and filings against Chinese companies have accounted for approximately 18 percent.,” the same report stated.

Authors of the report explained that filings against foreign-domiciled issuers reached 64 in 2011, more than double the annual count observed in recent years.

“This surge in suits is largely attributed to the surge in filings against Chinese companies. So far in 2011, there have been a total of 29 filings against Chinese-domiciled firms. However, this number understates the number of Chinese firms targeted, as not all companies based in China are legally domiciled there,” the report stated.

When the Trends authors included Chinese companies that are either domiciled in China or have their principal executive offices in the country, there have been 39 suits against Chinese companies in 2011.

“The year 2011 may be remembered as the year that saw the explosion of Chinese company-related lawsuits, the continued dominance of M&A cases alleging breach of fiduciary duty, and the sunset of credit crisis-related litigation,” said NERA Senior Vice President and report co-author Dr. John Montgomery. “Looking ahead, it will be interesting to see how the level of filings may change or whether new categories of litigation will predominate.”

This year-end study was authored by NERA Senior Vice President Dr. John Montgomery and Senior Consultants Dr. Jordan Milev, Robert Patton, and Svetlana Starykh and includes data on filings and dismissals through 30 November 2011, and settlements through 31 December 2011.

NERA, a consultancy firm that provides business, financial, and economic advisory services to government and private entities like law firms, has been analyzing trends in securities class actions for more than 15 years. Two reports are published per year: a mid-year study and an annual review at year’s end.

Average settlement values of securities class actions fell to $31 million in 2011, well below the 2010 average of $108 million, the report showed.

However, the annual average settlement figure can be significantly impacted by large settlement outliers. Excluding settlements in excess of $1 billion, as well as 309 small settlements related to IPO laddering cases that were approved in October 2009, there is still a substantial decline in average settlements from 2010 to 2011 - from $40 million in 2010 to $31 in 2011. An alternative metric Trends authors use is median settlements. In 2010, the median settlement reached an all-time high of $11 million, but in 2011, this figure fell to $8.7 million - below the previous two years but still the third highest on record.

“The number of settlements has declined, with the median settlement in 2011 falling below last year’s high on $11 million, but still the third-highest on record,” said NERA Senior Consultant Robert Patton.

“Settlement amounts also reflect the stage of litigation,” added NERA Senior Consultant Jordan Milev. “Settling after a motion for summary judgment is denied could drive up the settlement amount by an estimated 62%, on average.”