NERA Economic Consulting Releases 2010 SEC Settlement Trends Report

New York -- SEC settlements rebounded sharply in fiscal year (FY) 2010 due to a surge in settlements with individual defendants, according to NERA Economic Consulting’s semi-annual SEC trends report released today. The SEC settled with a total of 694 defendants in the past fiscal year, the highest level since 2007 and a 14 percent increase over the 611 settlements in FY2009.

Individual settlements in 2010 were the highest number seen since 2005—increasing to 526, a 25 percent jump over 2009 settlements of 421. While the number of individual settlements rose, SEC settlements with companies dropped in 2010 to the second lowest total in any year since the passage of the Sarbanes-Oxley Act (SOX), with 168 compared to 190 in 2009.

The much-publicized $550 million settlement with Goldman Sachs was the highest-value settlement in 2010 and the third-largest SEC settlement since SOX. While the overall surge in settlements with individual defendants may be interpreted as a shift towards individual accountability, the Goldman Sachs settlement demonstrates that company defendants remain very much at risk of large settlements.

Settlement Value Trends

Monetary payments were paid in 50.6 percent of company settlements in 2010, compared to the annual average of 54.5 percent from 2003 to 2009. Among companies whose settlements included a monetary payment, the average amount increased for the second straight year to $18.3 million, compared to $10.9 million in 2009 and $4.6 million in 2008. The median company settlement fell to $799,000 versus $1 million in 2009.

Individual settlements that included a monetary payment declined slightly to 50.8 percent in 2010 versus 53.5 percent from 2003 to 2009. The average individual settlement was $994,000, an increase from the 2009 average of $958,000. The median settlement in 2010 was $130,000 compared to $103,000 in 2009.

Additional SEC Trends

* The SEC settled with 112 defendants in cases involving public company misstatement cases, the third consecutive annual decline. Individual settlements held steady in 2010 at 95 compared to company settlements of 17, a post-SOX low. This ratio of individuals to company defendants may be indicative of a heightened emphasis on individual accountability in public company misstatement cases.
* The SEC settled Foreign Corrupt Practice Act (FCPA) charges with 20 defendants in 2010— a post-SOX high—and four of these FCPA settlements were among the top 10 settlements in the second half of 2010. NERA SEC Trends authors note that the creation of the FCPA Unit within the SEC Division of Enforcement strongly suggests that this will be an important focus area for future enforcement activities.
* The number of defendants settling insider trading charges with the SEC increased to 73 in 2010, compared to 66 in 2009. Among individuals whose settlements included a monetary payment, the median settlement value was $156,000, the largest value since the passage of SOX.

SEC Settlement Trends Report Series

SEC Settlements Trends: 2H10 Update, historical SEC settlements data, and previous SEC settlement trends reports can be viewed on NERA Economic Consulting’s Securities Litigation Trends website at www.securitieslitigationtrends.com.

This report is authored by NERA Senior Vice President Dr. Elaine Buckberg, Vice President and former SEC Chief Economist Dr. Jim Overdahl, and Senior Consultant Jan Larsen.

About NERA

NERA Economic Consulting (www.nera.com) is a global firm of experts dedicated to applying economic, finance, and quantitative principles to complex business and legal challenges. For half a century, NERA’s economists have been creating strategies, studies, reports, expert testimony, and policy recommendations for government authorities and the world’s leading law firms and corporations. We bring academic rigor, objectivity, and real world industry experience to bear on issues arising from competition, regulation, public policy, strategy, finance, and litigation.

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