What is the likelihood of a class‑action settlement versus a court trial and how would each scenario impact shareholder value?

Likelihood of a settlement vs a trial

In securities‑fraud class‑action cases the historical norm is a settlement rather than a full bench trial. The cost of defending a protracted case—legal fees, discovery expenses, and the risk of a potentially large, adverse judgment—generally outweighs the certainty of a modest cash settlement. Moreover, the plaintiff’s counsel (Frank R. Cruz) is already urging investors to “inquire” about a class‑action, a signal that a settlement package is being prepared and that the parties are looking to resolve the matter before it escalates to a courtroom. While a trial is still possible if the parties cannot agree on terms, the probability of a settlement is probably in the 70‑80 % range versus a 20‑30 % chance of a trial.

Impact on shareholder value

Settlement: A settlement will most likely involve a cash‑out to class members and possibly a modest “re‑structuring” of the company’s capital (e.g., a small reverse split, issuance of new shares, or a contingent‑payment note). The net effect is usually dilutive but limited—the market will price in the expected payout (often a few cents per share) and the associated dilution. Because the exposure is capped, the upside for the remaining shareholders is modest; the stock may trade flat to slightly lower until the settlement is confirmed, then recover modestly as the legal uncertainty is removed.

Trial: If the case proceeds to trial, the upside for shareholders is the potential for a larger, albeit uncertain, judgment—but the downside is the heightened volatility and the risk of a multi‑million‑dollar verdict that could force SelectQuote to issue additional equity, take on debt, or even consider bankruptcy. Market participants typically price in a risk premium for the “trial‑risk” scenario, which translates into a discount of 5‑10 % on the current price while the case is pending. A negative trial outcome would be a sharp catalyst for a sell‑off, whereas a favorable verdict could trigger a short‑cover rally.

Actionable take‑away

• Maintain a short‑to‑neutral stance until settlement terms are disclosed. If the stock is already down on the negative sentiment (‑70), a modest short position or a protective put can capture upside from further downside on trial risk.
  
• Monitor SEC filings and class‑action disclosures (e.g., the settlement notice, the “notice of settlement” filing, or any motion to dismiss). Confirmation of a settlement should be met with a buy‑on‑breakout or at least a cover of shorts as the legal cloud lifts.
  
• Watch volume and price action around key dates (e.g., the class‑action deadline, any scheduled hearing). A breakout on higher‑than‑expected settlement terms could provide a short‑term upside play; a move toward a trial hearing with widening bid‑ask spreads signals heightened risk and may warrant scaling back exposure.