Company Settlement Costs Rise to $5.5 Billion

Companies paid a record $5.5 billion last year to settle investors’ stock fraud claims filed in U.S. courts, according to a report by a firm that tracks such lawsuits.

The total, which includes $2.6 billion for a partial settlement of suits against WorldCom Inc. (now MCI Inc.), is an increase over the $2.1 billion in 2003 settlements according to the study released Wednesday by Cornerstone Research, a consulting firm.

The study predicts the trend of higher settlement costs will continue, as market capitalizations grow, resulting in bigger potential damages for defrauded investors when stock prices drop.

The study analyzed the 620 securities fraud class actions settled since Congress passed changes in securities litigation in 1995.

Securities fraud suits are settled, on average, about three years after they’re filed, according to Cornerstone Research. Some cases are thrown out by judges, resulting in no settlement. Few securities fraud class actions go to trial, lawyers said.

Last year, 118 cases were settled, compared with 96 in 2003. The average value of the settlements rose during that period, to $24.6 million from $19.2 million, according to the study.

Settlements were higher than average in cases that included allegations of accounting misstatements, or those that had an institutional investor as the lead plaintiff.

Before 2004, the record for total settlements was $4.5 billion.