Federal securities class action activity declined in the first half of 2009, with a particularly significant decline in the second quarter, according to 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.
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. Financial services firms are defendants in 66.7 percent of these filings, an increase over the 50.0 percent share of all filings in 2008.
Professor Joseph Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research:
Securities 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.
Key Findings
- If the filing rate for the first half of the year continues, then 174 securities class actions will be filed this year, a 22.3 percent decrease from 2008 and an 11.7 percent decrease from the annual average for the 12 year period ending December 2008.
- 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.
- The dramatic decline in the number of class action filings is contemporaneous with a 43.7 percent decline from the fourth quarter of 2008 to the second quarter of 2009 in stock market volatility as measured by the Chicago Board Options Exchange Volatility Index (VIX).
- The Litigation Heat Maps™, a recent addition to the report, show that 2.8 percent of companies that represent 7.5 percent of market capitalization in the S&P 500 index were defendants in filings in the first half of 2009. Financial firms were hit hard as 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.
- The number of filings against unique issuers on major U.S. exchanges decreased in the first half of 2009 on an absolute level and as a percentage of total filings. This decline was driven by a large number of filings related to non-exchange-traded securities and private companies in the first half of 2009.
- 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.
