Suits Against Financial Firms Driving Litigation Activity

While federal securities class action activity declined in the first half of 2009, with a particularly significant decline in the second quarter, suits against financial services firms and foreign firms increased, according to the Securities Class Action Filings: 2009 Mid-Year Assessment.

According to the study from Cornerstone Research and Stanford University Law School’s Securities Class Action Clearinghouse, a total of 87 federal securities class actions were filed in the first half of 2009, a 22.3% decline from the 112 filings in both halves of 2008. Only 35 filings were observed in the second quarter, the lowest quarterly total since the first quarter of 2007. Financial services firms are defendants in 66.7% of these filings, an increase over the 50.0% share of all filings in 2008, the study says.

“Securities litigation activity continues to be driven by claims against financial services firms, but all the large firms in the industry have already been sued,” says Professor Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “Plaintiffs are therefore filing claims against the smaller number of smaller financial services firms yet to be sued. Those facts, combined with the general decline in stock market valuations, help explain the decline in the number of companies sued and in the dollar amounts at risk in recent litigation, as measured by the Disclosure Dollar Losses (DDL).” The study notes that DDL totaled only $48 billion, well below the semiannual average of $69 billion.