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Investors Filed Fewer Lawsuits in 2009Submitted by: Ted Allen, Publications

The wave of new federal securities lawsuits related to the global credit crisis has finally subsided.

While RiskMetrics Group and other research firms count class-action cases differently, they all agree that 2009 filings declined from 2008 levels, primarily because there were fewer credit-crisis claims. In a Dec. 15 report, NERA Economic Consulting projected that 235 new cases would be filed in 2009, down 7 percent from 253 filings in 2008. In a joint Jan. 5 report, Stanford Law School and Cornerstone Research said that 169 cases were filed last year, a 24 percent decrease from 223 cases in 2008. Meanwhile, RiskMetrics? Securities Class Action Services (SCAS) tracked 236 new federal cases in 2009, 16.3 percent less than the 282 cases brought in 2008.

"It looks like the credit crisis cases are not disappearing, but they are slowing down," Stephanie Plancich, a senior consultant with NERA, said in a press release. "It looks like they are winding down, and I would expect to see fewer in 2010."

The Stanford-Cornerstone report also attributes the decline to a decrease in market volatility. "After sharply rising for two years, market volatility decreased in the first half of 2009 and then fell again in the second half of the year. In that sense, it?s no surprise that filings decreased this year,? John Gould, senior vice president of Cornerstone Research, said in a press release.

While new case filings have declined, NERA points out that they still are outpacing the rate of litigation activity before the credit crisis began in 2007. There were 130 just new lawsuits filed in 2006, and the 2009 total is comparable with the 1997-2004 average of 231 annual filings, the NERA report noted. However, the Stanford-Cornerstone report concludes that last year's 169 filings were below the historical average of 197 cases observed between 1997 and 2008.

Adam Savett, director of SCAS, believes that the NERA numbers and conclusions track closer to the reality that his research team is seeing than the Stanford-Cornerstone numbers. "While 2009 saw a dip from 2008's surge in new cases, according to SCAS' numbers, new case filings in 2009 trended about 15 percent over historical levels," Savett said.

Once again, the largest category of 2009 cases were those that arose from the credit crisis. NERA reported that 60 credit crisis lawsuits (40 percent of the total) had been filed as of Nov. 30, and noted that most of those complaints were brought during the first half of the year. Likewise, Stanford-Cornerstone found that just 17 of 53 credit-related cases were filed during the second half of the year.

One significant trend that contributed to the 2009 filing volume were the cases brought by investors in exchange-traded funds (ETFs) managed by ProShare Funds and other managers. Thirteen ETF-related cases were filed between August and November, according to NERA; Stanford-Cornerstone documented 11 such cases.

Another contributing factor was the cases related to Ponzi schemes. According to NERA, there were 39 lawsuits, up from 10 cases in 2008. Most of those cases arose from Bernard Madoff's massive investment fraud case. There also were claims by investors who lost money with fund manager R. Allen Stanford.

Full post as published by Institutional Shareholder Services -- Corporate Governance Blog on January 06, 2010 (boomark / email).