Defense Cost Project

Thank you for your interest in the Stanford’s Securities Litigation Analytics’ defense cost research project. The project is an industry-wide collaborative effort with insurers and brokers to bring accuracy and transparency to one of the most significant costs in private shareholder litigation. Access to the Defense Cost dashboard, which features initial analysis and descriptive statistics, is limited to our research collaborators. If you have any questions or would like to contribute to the research effort, please email Jason Hegland at

The formal description for the project, as submitted to Stanford University’s Office of Industrial Contracts, is below:

SSLA Defense Cost Project

Michael Klausner and Jason Hegland, along with Stanford personnel under their direction, will combine the Data with data that they have collected in connection with the Stanford Securities Litigation Analytics (SSLA) project to analyze the cost of securities class actions and M&A objection suits brought under the securities laws.

The objective of the securities laws is to ensure that shareholders receive material information about the companies in which they invest. When companies fail to disclose information that they are required to disclose, they and their officers and directors are potentially liable for compensatory payments to shareholders. Especially in recent years, however, commentators have raised concerns regarding the cost of these lawsuits—both the legal fees involved and the possibility that defendants settle non-meritorious suits to avoid the cost of litigation. This concern is particularly acute in the context of merger objection suits, where terminating the lawsuit may be essential to getting a deal done.

Plaintiffs’ attorney’s fees are publicly disclosed. In traditional securities class actions under Section 10(b) of the Securities and Exchange Act and Sections 11 and 12 of the Securities Act, they are often 25% to 30% of the shareholders’ recovery. In M&A objection suits, where shareholders typically receive no recovery, plaintiffs’ attorneys’ fees are often $400,000 to $500,000 for cases that take a few days or a few weeks to litigate.

The cost of defending these lawsuits, however, has never been publicly disclosed or analyzed. As a result, we do not know how much of shareholders’ recoveries (when there is a recovery) goes to the lawyers. In order to evaluate whether this litigation is worth the cost, we need to factor into the equation the total cost of litigating. That is the goal of the first part of the Research Program.

We will investigate and attempt to answer several research questions related to the cost of securities class action litigation. Specifically, to what extent are shareholder recoveries offset by attorneys’ fees (both plaintiffs and defense)? How does the cost of a lawsuit vary with respect to the outcome of the case—for example, a dismissal versus a settlement, a settlement at an early stage of the litigation versus a settlement at a later stage?

Depending on the availability of data from other carriers, the Research Program will ideally expand from these basic questions to related questions regarding the factors that influence the size of securities class action settlements. Some argue that settlement size is driven by the amount of available insurance, with otherwise meritorious, high-damages suits settling for artificially capped amounts. Others take this view to the opposite extreme, saying that a defendant’s insurance policy is always paid out to the plaintiff class (and lawyers) regardless of the merits of a case. If data is available to do so, we will investigate the empirical relationship between the insurance tower and settlement size.

An ultimate objective of the data analysis will be to inform the policy debate regarding reform of the securities class action system.