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Irate Investors Filing More Class-Action Lawsuits

Publication Date: 
January 20, 2009
Los Angeles Times
Nancy Trejos

Professor Joseph A. Grundfest is quoted in the Los Angeles Times in an article about the tremendous increase in securities class action filings reported by the Securities Class Action Clearinghouse:

Investors are claiming they have lost as much as $856 billion, according to an annual report by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research. That's a 27% increase over the previous year. Like NERA, Stanford also reported a significant increase in the number of class-action lawsuits filed in 2008.

Many of the actions are directed against companies in the financial industry. Joseph Grundfest, director of the Stanford clearinghouse, said he had not seen so much litigation against a single industry in more than a decade. Nearly a third of all financial firms were named as a defendant in a securities class action filed in 2008, the Stanford study found. The firms named as defendants represented more than half of the sector's total market capitalization. Among them: New Century Financial, Countrywide Financial, IndyMac Mortgage, Washington Mutual and American International Group Inc.

The cases allege some sort of securities fraud. Grundfest said there were three main categories of cases against the financial services sector. Some plaintiffs are claiming that companies lied about the value of securities in their portfolios. Others are claiming that they lied about their underwriting practices. Still others are filing suits against firms that sold auction-rate securities, which are bonds with interest rates reset by periodic bidding, as often as every week. The market for those bonds dried up last year, leaving investors unable to access their money.