A report on trends in federal securities class actions–includinga dip in the number of suits below 200 for the first time since1997–is giving directors and officers liability insurers reason tocelebrate.

The study, released jointly by the Stanford Law SchoolSecurities Class Action Clearinghouse in Palo Alto, Calif., andBoston-based Cornerstone Research, found that the number ofsecurities fraud class actions filed in 2005 decreased more than 17percent compared to 2004 levels–to 176 from 213 filings a yearearlier.

A review of year-by-year statistics posted on Stanford LawSchool's securities class action Web site(http://securities.stanford.edu) revealed that the number of suitshas exceeded 200 for seven straight years prior to 2005, with lowsof 110 and 175 in 1996 and 1997, respectively.

According to the report, the average number of cases since thepassage of the Private Securities Litigation Reform Act in 1995 was195. This was derived by averaging the number of traditional casesfrom 1996 through 2004. Traditional cases exclude more than 300cases related to IPO allocations filed in 2001, as well as casesrelated to mutual fund market timing in more recent years.

The Private Securities Litigation Reform Act raised pleadingstandards and procedural hurdles for bringing securities classactions to federal court in an attempt to end the so-called “raceto the courthouse” in which plaintiffs lawyers brought allegedlyfrivolous lawsuits as soon as stock prices fell in the late1990s.

But in the years immediately following the act, neither thenumber of cases nor the dollar value of settlements declined. Infact, settlements involving Enron, WorldCom and Cendant all toppedthe $3 billion mark.

The new Stanford/Cornerstone study, however, found that investorlosses related to lawsuits filed in 2005 decreased dramatically.The Clearinghouse's Disclosure Dollar Loss Index, which measuresthe decline in the defendant firm's market capitalization at theend of the class period, plummeted 33 percent, falling to $99billion from $147 billion in 2004.

Stanford Law School Professor Joseph Grundfest, director of theSecurities Class Action Clearinghouse and former commissioner ofthe Securities and Exchange Commission, said, “Lawsuits arisingfrom the dramatic boom and bust of U.S. equities in the late 1990sand early 2000s are now largely behind us.”

A second factor that may explain the report results, hespeculated, is that “improved governance in the wake of the Enronand WorldCom frauds may have reduced the actual incidence offraud.”

Dr. John Gould, vice president of Cornerstone Research, addedthat the decline in stock market volatility in 2005 may be a reasonfor the lower intensity of securities class action filings.

Summarizing results by industry, the study found the consumernoncyclical sector (including biotechnology, commercial services,cosmetics/personal care, food, health care-products, healthcare-services, pharmaceuticals) now gives rise to the mostlitigation, while filings fell more than 30 percent in thetechnology and communications sectors.