The collapse of subprime mortgage investments is driving the number of shareholder class-action filings back up after a decline of such filings in 2005 and 2006, according to two recent reports.

One report released by NERA Economic Consulting, called "2008 Trends: Subprime and Auction-Rate Cases Continue to Drive Filings, and Large Settlements Keep Averages High," said filings are on pace to reach almost 280 for the year.

Cornerstone Research's report, "Security Class Action Filings: 2008 Mid-Year Assessment," projects 220 such filings if the rate continues at its current pace.

From July 2005-June 2007, the Cornerstone Research study added, the filings were 38.2 percent below the average for the nine years ending June 2005.

The NERA study said, "Clearly, the current subprime and credit crisis is a major factor in the recent surge in shareholder class-action filings. In 2008, 51 percent of filings through June 30 have allegations related to the subprime collapse."

The Cornerstone Research study noted that 58 of the 110 first-half 2008 filings contained allegations relating to the subprime mortgage/credit crunch.

Both studies agreed that market volatility is also playing a role in the increased number of filings in 2008. The Cornerstone Research study found that "filings jumped from 119 in the 12 months ending June 2007 to 217 over the next 12 months, and stock market volatility doubled over the same period."

The NERA study also noted that class-action filings are likely following a large drop in a company's stock. "We find that the probability of a filing over the three months following such price drops increases with the size of the drop," said the study.

It also commented that recently filed cases may result in large settlements because of high investor losses stemming from the subprime crisis.

The study said that "investor losses–a powerful determinant of settlement size–for cases filed in the first six months of 2008 have a median value in excess of $800 million, substantially higher than the approximately $350 million median for cases settled in the 2005-2007 time frame."

Special Reports /

Class Actions Reported Surging Over Subprime Impact

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