Working Hard or Making Work? Plaintiffs' Attorneys Fees in Securities Fraud Class Actions

In this paper, we study attorneys' fees awarded in the largest securities class actions: “mega-settlements.” Consistent with prior work, we find larger fee awards but lower percentages in these cases. We also find that courts are more likely to reject or modify fee requests made in connection with the largest settlements. We conjecture that this scrutiny provides an incentive for law firms to bill more hours, not to advance the case, to help justify large fee awards – “make work.” The results of our empirical tests are consistent with plaintiffs' attorneys investing more time in litigation against larger companies, particularly when there are multiple lead counsel firms. Using a difference-in-difference analysis, we show that “make work” increased in cases with multiple lead counsel after the Supreme Court validated a “price impact” defense in the Halliburton II case. We find a similar pattern with relative efficiency, with more hours per litigation day. We also find that courts award higher multipliers in cases with pre-litigation observable characteristics that indicate a lower risk of dismissal – and a correspondingly higher probability of settlement – particularly against larger companies. Overall, our results suggest that plaintiffs' attorneys are receiving windfall fee awards in mega-settlement cases at shareholders' expense