August 2, 2010

Securities Suits Plummet in First Half of '10, Stanford Report Shows

Waning of filings related to credit crisis contributed to drop

Securities class action law suits dropped dramatically in the first half of 2010, according to the recently released Securities Class Action Filings--2010 Mid-Year Assessment, a semiannual report prepared by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research. The report found that the decline in filings is associated with a decrease in credit-crisis-related litigation, which accounted for only eight filings in the first half of 2010 compared with 37 filings in the first half of 2009.

"The securities fraud litigation wave stimulated by the credit crisis now appears to be history," said Professor Joseph Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse, in a statement. "We have an inventory of cases waiting to be dismissed, settled, or tried, but to borrow a phrase from the current Gulf oil spill crisis, it seems that this flow has largely been capped."

John Gould, Senior VP of Cornerstone Research, added in the same statement that in addition to the low level of filings, "what is interesting is the large decrease in the median lag time between the end of the class periods and the filing dates, which may indicate that plaintiffs have caught up with old cases after being inundated with cases involving the credit crisis."

According to the report, which is available at securities.stanford.edu or cornerstone.com, 71 federal securities class actions were filed in the first half of 2010, a 15.5% decline from the 84 filings in each half of 2009.

The report notes some other key findings:

? If the filing rate for the first half of the year continues, there will be a total of 143 filings in 2010, the second lowest annual number of filings since 1997.

? The quarterly number of filings has fluctuated in the past 12 months. From the third to the fourth quarter of 2009, the number of filings declined by 9.1%, and from the fourth quarter of 2009 to the first quarter of 2010, the number declined by 15.0%. During the second quarter of 2010, however, there was a slight increase of 8.8% in the quarterly number of filings.

? The number of unique issuers whose exchange-traded securities were involved in class actions rebounded to 80.3% of the total number of filings in the first half of 2010. The number of unique issuers held steady at 93.1% between 1997 and 2007 and declined to 75.2 and 70.2% in 2008 and 2009, respectively.

? The Heat Maps of S&P 500 Securities Litigation show that 2.4% of companies, representing 4.9% of market capitalization in the S&P 500 Index, were defendants in filings in the first half of 2010. In particular, both the Health Care and Energy sectors of the S&P 500 Index, as defined by the Global Industry Classification Standard, experienced a pickup in filings--7.7%of the S&P 500 companies in each sector were named as defendants. In the full year of 2009, 3.7% of the Health Care companies and 2.6% of the Energy companies in the S&P 500 were targeted.

? On June 24, 2010, the Supreme Court ruled, in Morrison v. National Australian Bank Ltd., that foreign investors cannot file lawsuits in U.S. courts against foreign firms over shares bought on foreign exchanges, on the grounds that the U.S. securities laws do not reach conduct that has no effect in U.S. securities markets.

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