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Mid-Year Report Finds Securities Class Action Filings on Decline, But Financial Services Firms Named as Defendants in Increasing Number of Suits
Federal securities class action activity declined in the first half of 2009, with a particularly significant decline in the second quarter, according to the Securities Class Action Filings—2009: Mid-Year Assessment, an annual report prepared by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research.
According to the report, a total of 87 federal securities class actions were filed in the first half of 2009, a 22.3 percent decline from the 112 filings in both halves of 2008. Only 35 filings were observed in the second quarter, the lowest quarterly total since the first quarter of 2007. While filings are on the decline, the report also found that financial services firms have been named as defendants in 66.7% of filings this year, an increase over the 50% share of all filings in 2008.
Professor Joseph Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse commented that “[s]ecurities litigation activity continues to be driven by claims against financial services firms, but all the large firms in the industry have already been sued. Plaintiffs are therefore filing claims against the smaller number of smaller financial services firms yet to be sued.”
Among the report’s key findings:
- About half of the filings so far in 2009 were driven by the credit crisis, with 42 filings in the first half of the year containing allegations related to the credit crisis.
- Financial firms have been named as defendants in an increasing number of suits. 12.8 percent of companies in the S&P 500 classified by Bloomberg as financial were named as defendants, accounting for 41.2 percent of the market capitalization of that sector. (See below chart)
- There were 15 filings related to Ponzi schemes thus far in 2009. The majority of these lawsuits, 11 filings, were on behalf of investors in Madoff funds, with most suits targeting so-called feeder funds, hedge funds, and other financial intermediaries that invested their clients’ money with Madoff.
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