Stephen Choi is the Murray and Kathleen Bring Professor of Law at NYU Law School; Jessica M. Erickson is Professor of Law at the University of Richmond School of Law; and Adam C. Pritchard is the Frances and George Skestos Professor of Law at University of Michigan Law School. This post is based on their recent paper.
Concerns about securities class actions typically focus on the low-value cases. These cases settle for relatively small amounts of money, raising concerns that they are motivated by the potential for a nuisance settlement, rather than a desire to target actual fraud. The cases at the other end of the spectrum with settlements of hundreds of millions of dollars look like success stories and therefore do not receive the same empirical scrutiny. These cases, however, pose risks of their own. In our paper Working Hard or Making Work? Plaintiffs’ Attorneys Fees in Securities Fraud Class Actions, we examine these mega-settlements, focusing specifically on the fees awarded to plaintiffs’ attorneys in these suits.
Mega-settlements stand apart as a distinct category of settlements in securities class actions. The bottom 90% of settlements—i.e., the settlements in the first nine deciles—average $11 million, with settlements in the ninth decile averaging $41.8 million. The settlements in the top decile, by contrast, average $295.5 million, more than seven times larger than the settlements in the decile below. Predictably, these settlements lead to significant fees for the plaintiffs’ attorneys—a mean of $39.5 million compared to a mean of $2.7 in the other nine deciles.
