Securities fraud class action lawsuit filings this year will bedown 31 percent when compared to 2005, according to projections ina Stanford Law School study.

The report said that filings for the last six months have hittheir lowest level for a six-month period since 1996.

The report, issued by the Stanford Law School Securities ClassAction Clearinghouse in cooperation with Cornerstone Research,found that there were 61 securities fraud class actions filed fromJanuary through June.

On a yearly basis, the study estimates that in 2006 the numberof suits will fall to 123 from 179 filings in 2005.

The midyear study also found a large decline in marketcapitalization losses related to all securities fraud class actionlawsuits filed so far in 2006.

According to the study, the lower number of filings and lowermarket capitalization losses are reflected in decreases in totaldisclosure dollar loss (DDL) and lower maximum dollar loss(MDL)

The DDL decreased 55 percent on an annualized basis from $100billion in 2005 to $22 billion ($45 billion on an annualized basis)in the first half of 2006.

The MDL decreased 44 percent on an annualized basis from $456billion in 2005 to $127 billion ($255 billion on an annualizedbasis) in the first half of 2006.

“We're halfway through 2006 and already we're witnessingevidence consistent with a slowdown in the volume of federal classaction litigation activity,” said Joseph Grundfest, Stanford lawschool professor and director of the Securities Class ActionClearinghouse and former commissioner of the Securities andExchange Commission.

Mr. Grundfest commented in a statement, “While we lack the datanecessary to determine the precise cause of the slowdown, the mostintriguing hypothesis is that extensive and expensive corporateefforts to improve governance and accounting have reducedplaintiffs' ability to allege fraud.”

Dr. John Gould, vice president of Cornerstone Research and majorcontributor to the study, suggested caution in interpreting therecent slowdown in filings, saying, “Although there is no doubtthat there has been a considerably lower level of filing activityover the last year, it is still too early to tell whether thisrepresents a permanent shift.”

Despite the recent wave of public attention surrounding theSecurities and Exchange Commission and Justice Departmentinvestigation of alleged backdating of stock options at more thansixty publicly traded companies, the impact has not been as largeas some might expect, the survey found.

In fact, by June 30 only eight federal class actions wereidentified alleging illegal backdating behavior. They are ComverseTechnology Inc.; Vitesse Semiconductor Corporation; UnitedHealthGroup Inc.; American Tower Corporation; Brooks Automation Inc.;KLA-Tencor Corporation; Brocade Communication Systems Inc.; andMercury Interactive Corporation.

Since the close of the report's sample period, two more issuershave been named in backdating class actions Juniper Networks Inc.and Rambus Inc., bringing the total number of backdating relatedclass actions to 10.

Mr. Grundfest noted several reasons why class action complaintsin backdating situations are not more common:

o Many disclosures relating to allegations of backdating are notaccompanied by statistically significant stock price declines.

o The alleged options backdating activities occurred so long agothat the statute of limitations defense may be effective.

o In some situations, the uncertainties associated with theapplication of appropriate accounting principles may causepotential plaintiffs to recognize that they will have difficultyalleging that there was an intention to commit fraud.

o Most of the litigation is being filed in state court throughderivative actions because these actions do not, as a practicalmatter, require significant stock drops as a basis for filing, andit may be easier to allege a violation of a fiduciary duty in manyof these cases than to demonstrate a willful fraud.