On computing probabilities of dismissal of 10b-5 securities class-action cases

What is it about?

When a class action case is filed by the plaintiffs against a firm, the D&O insurance company that insures the firm files a motion to dismiss. Will the presiding judge dismiss the class action case or not? This is of great import to the D&O insurance company, which must decide whether to settle the case before the judge makes a ruling or wait for the judge's decision. In this paper, we provide a model (based on the characteristics of the class-action complaint) that provides the probability of dismissal.

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Why is it important?

The model we provide is more accurate than other models that exist in the literature. This is of great interest to D&O insurance companies, which must decide whether to settle or not prior to the judge's ruling. If they decide to wait and the case is not dismissed, the case proceeds to the discovery phase and cost of settlements go up.

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