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Securities Fraud Lawsuits On Rise

Publication Date: 
January 06, 2008
Source: 
Seattle Post-Intelligencer
Author: 
Bob Van Voris / Bloomberg News

A Bloomberg News story in the Seattle Post-Intelligencer quotes Professor Joseph Grundfest about the large uptick in securities fraud lawsuits in 2007:

Securities fraud class-action suits are on the rise, fueled by subprime mortgage losses, after dropping to a 10-year low in the U.S. in 2006, a study found.

Investors sued 166 companies claiming stock fraud in 2007, 43 percent more than the 116 in the prior year, according to a study by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research.

...

"Each year has had a large, macro event -- '06 was the year of options backdating; '07 was the year of subprime," said Joseph Grundfest, a Stanford law professor who directs the clearinghouse.

...

Of all the suits filed in 2007, at least 32 included claims relating to the subprime mortgage market. The high number of subprime claims, which are not likely to recur in future years, raises the possibility that securities fraud filings may remain low in the future, Grundfest said.

...

The Stanford study found that 64 percent of the suits filed from 1996 to 2001 were settled and 35 percent dismissed by courts. The median time required to resolve the cases was 33 months...

In one of the rare trials, in November, JDS Uniphase Corp. and its former top executives won a federal jury verdict in a suit seeking as much as $20 billion in damages. The JDS Uniphase verdict may embolden defendants to take more cases to trial or encourage plaintiffs' lawyers to moderate their settlement demands, Grundfest said.

...

Milberg Weiss represented investors in half the securities fraud settlements between 1995 and 2002, according to an earlier study published by the Stanford group. Grundfest said he doesn't believe the Milberg Weiss prosecution has had any effect on the number of securities fraud filings.

"Last time I looked, there was no shortage of class-action plaintiffs' lawyers" willing to sue, Grundfest said.