Determinants of the Settlement Amount in Securities Fraud Class Action Litigation

This article identifies the factors most responsible for determining the settlement amount in securities fraud cases. It also develops a settlement model that incorporates these factors. This article analyzes a sample consisting of 525 securities fraud class action settlements that were reached between 1994 and 2005. It identifies the main drivers of the observed settlement amounts and develop a settlement model that explains more than fifty-six percent of the settlement amounts in terms of these settlement drivers. The settlement model should be useful to counsel or interested parties for gauging a reasonable settlement amount consistent with past experience. It should also be of interest to legal scholars because it identifies a set of factors that affect the settlement amount and quantifies their relative impact on the settlement amount for an important set of class actions. This article\u27s modeling technique could be applied to other types of class action (or other) litigation to estimate similar models to aid in the litigation settlement process