Legal News

Making Sense of the Dip in Securities-Fraud Cases

By Ashby Jones

It’s bad news for plaintiffs’ lawyers as well as for the big law firms that defend them: Securities-related class-action suits are down. According to a report by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research, filings in the first half of 2009 declined by more than 22% from the levels set in the first half of 2008.

The reasons behind the drop aren’t particularly hard to finger. According to this NLJ story, the decline is partly reflected in the fact that the largest financial firms — a big target of the latest wave of securities suits — were sued en masse in 2008, as the credit crunch and ensuing economic meltdown were in full swing. Another possible factor: securities-fraud suits tend to get filed in the wake of swift stock drops. While the market levels are still well down from highs hit in earlier in the decade, they’ve largely stabilized when compared to last year.

According to the Stanford/Cornerstone report, 87 federal securities class actions were filed during the first half of 2009, compared to 112 in both the first and last six months of 2008, for a total of 224.

So what’s the takeaway from the study? One, according to the NLJ, is that it’s smaller banks who are getting hit. Plaintiffs firms are also lobbing complaints at foreign companies: A hefty portion of this year’s federal class action securities filings - 21% - targeted overseas institutions.

“The up-tick in litigation activity against foreign firms can therefore be viewed as a side effect of the larger trend to sue financial services firms, wherever they are headquartered,” said Stanford law professor Joseph Grundfest. “The key question for the plaintiffs is whether they can get jurisdiction in the U.S. courts.”

Full post as published by Law Blog - WSJ.com on July 21, 2009 (boomark / email).