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Securities Litigation Hits Low Point

Publication Date: 
July 29, 2010
Daily Journal
Gabe Friedman

The Securities Class-Action Clearinghouse is mentioned in this article on decline in the number of filings in securities class-action litigation. Gabe Friedman of the Daily Journal filed this story:

Securities class-action litigation is in the doldrums, according to several studies released in recent weeks that uniformly paint a bleak picture of the field and suggest the number of filings has reached the lowest point in years.

A study conducted jointly by Cornerstone Research and Stanford Law School's Securities Class-action Clearinghouse that was released Wednesday suggests a drop in credit-crisis related litigation is driving the decrease in securities filings.

While the Stanford study only examines federal filings, other studies looking into state court filings also reported an overall downward trend this year. At least one other report, however, discovered a recent strong uptick in securities filings in state court primarily in the form of breach of fiduciary duty suits against companies involved in mergers or acquisitions. It reported that filings would soon return to high levels.


That conclusion dovetailed with the findings contained in the joint report by Cornerstone and Stanford.

That report noted that securities filings dropped to their lowest levels in decades: If the current rate of filings persists, there will be only 143 cases in 2010 - the lowest level since 1997.


John Gould, senior vice president of Cornerstone Research, said perhaps the greatest factor in driving filings is stock market volatility. When there is a great deal of volatility and companies' stock prices drop, there tends to be a high number of filings.

He noted the credit-crisis caused extreme market volatility and a high number of cases. But when volatility stabilized and normal market conditions returned, plaintiffs began filing so-called "lagging cases."

In these lagging cases, plaintiff lawyers file securities fraud suits months after a company's stock price dropped, as was seen during the market crash of 2008.

The median number of days between when a company's stock price dropped to when a suit was filed jumped to 112 days in 2009, Gould said, whereas in previous years it had been around 30 to 40 days. In 2010, the median lag period is around 25 days, he said. These so-called long-lag suits from 2009 fueled speculation that plaintiff lawyers were scrounging for new cases at that time.

Gould noted that there are probably a variety of reasons for the current decline in filings. He highlighted the fact that after the 2008 market crash and the resulting credit crisis, the stock market returned to relatively stable conditions.

"Plaintiff's counsel might say there's a decline because it's more difficult to file cases these days whereas defendant's counsel might just say there's less fraud out there," Gould said. "There's probably a number of reasons for the decline."