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PWC 2008 Securities Litigation Study

By Harvard Law School Program on Corporate Governance

(Editor’s Note: This post is by Grace Lamont of PricewaterhouseCoopers.)

In PricewaterhouseCoopers? 13th annual evaluation of private securities class action lawsuits, one thing is glaringly obvious: While 2008 was an extraordinary year for litigators, it also demonstrated how extremely vulnerable giant financial institutions and entire economies are to fissures in the financial system.

In the seemingly free-falling economic environment of the latter part of the year, we witnessed unprecedented events: Major failing institutions, systemic breakdowns in the financial system, and record government bailouts throughout the globe. All of this set the stage for notable litigation activity and trends.

US regulatory authorities focused on the players within various areas of the financial markets: mortgage companies, investment banks, broker-dealers, and insurance companies. The SEC secured some of the largest settlements in its history from firms charged with misleading investors. At the close of the SEC?s fiscal year, 50 investigations relating to the financial crisis were ongoing. The SEC and DOJ secured record settlements for FCPA violations. Both regulatory bodies pledged to continue pursuing FCPA violations going forward.

Fuelled by the financial crisis, federal securities class actions increased for a second year, and, not surprisingly, the financial services industry group was the most frequently sued, replacing high-technology companies for the first time since the passage of the PSLRA. Public and union pension funds continued to be the most active lead plaintiff in institutional investor filings, and a number of filings alleging Ponzi schemes emerged in the latter part of the year.

We also observed certain downward trends: The number of accounting-related cases as a percentage of total filings declined, and, likewise, the number of settlements recorded declined to the lowest number in any year this decade. Similar declines in settlement values, however, did not follow.

On the foreign securities litigation activity front, federal securities class actions filed against foreign private issuers (FPIs) jumped to an all-time high since the passage of the PSLRA. The number of FPI accounting-related cases doubled to 16 cases in 2008, while the average settlement value of FPI cases overall decreased. The number of foreign companies registered with the SEC continued to slide downward for a third year.

While the ramifications for 2009 and beyond remain to be seen, one thing is certain: The worldwide economic crisis will transform the financial industry and shape future regulation and enforcement.

As editor of the 2008 Study, I am appreciative to a handful of exceptional team members in the PricewaterhouseCoopers Securities Litigation and Investigations Practice, particularly my co-author, Patricia Etzold, for her scrutiny of global litigation activity. I extend additional thanks to Laura Skrief, Luke Heffernan, and Kevin Carter, who all provided meticulous analysis of the 2008 filings and invaluable contributions to the project at large.

Lastly, we are tremendously grateful for the editorial contributions from the law firms Hunton & Williams LLP and Sullivan & Cromwell LLP, in addition to Tricia Howse from the SFO, for the UK perspective on international regulatory cooperation.

The study is available here.

Linking to the PricewaterhouseCoopers site does not imply any endorsement by PricewaterhouseCoopers of the services or products being offered by Harvard Law School.

Full post as published by The Harvard Law School Corporate Governance Blog on May 02, 2009 (boomark / email).