While federal courts registered a record low number of stockholder suits last year, investors kept busy bringing securities actions at the state level, according to a PricewaterhouseCoopers study.
There is "no evidence of a downward trend in shareholder activism," wrote Grace Lamont, a PWC partner, in a preface to the report.
According to the firm's findings, federal securities litigation class-action filings in 2006 numbered 106, compared with 169 cases in 2005, and the 37 percent decrease was a 10-year record low.
PWC found there were 108 derivative actions filed in state court last year. Combined with the federal court filings, the total was 214, compared with the combined figure of 173 cases in 2005 and "only slightly under the average of 218 cases filed since 2002," the study said.
At the same time, levels for lawsuit settlements remained high, the PricewaterhouseCoopers' "2006 Securities Litigation Study" found, with 28 out of the 99 settlements in 2006 settled for $20 million or more, compared to 32 in 2005 and 23 in 2004.
The study found that the technology sector was the top target for private securities class actions, with 31 percent of the total federal cases filed naming high-tech companies, compared to 29 percent in 2005 and 31 percent in 2004.
PWC reported 13 enforcement actions alleging various hedge fund frauds and other securities violations–a decrease from 23 cases in 2005.
Securities and Exchange Commission enforcement actions and U.S. Department of Justice prosecutions in 2006 remain fairly consistent, PWC said.
Of all the securities cases filed in federal court, 26–or 25 percent of them–came from formal or informal SEC investigations or some form of SEC action, including enforcement actions or settlements, according to the report.
Large institutional investors as lead plaintiffs accounted for approximately 94 percent of the total settlement dollars. These include large union pension funds, public pension funds and other large institutional investors, said PWC.
The study said Fortune 500 companies faced fewer class-action suits in 2006. Out of the total number of federal securities class-action lawsuits filed during 2006, 11 percent involved a Fortune 500 company–down slightly from 15 percent during 2005 and 13 percent in 2004.
Actions against foreign private issuers continued to fall to the lowest level in seven years, but settlements increased in volume and magnitude, the firm found. It listed the largest settlement by a foreign registrant as a $2.2 billion agreement by Nortel.
Ms. Lamont wrote that if stock prices were to fall this year, it would likely mean another spike in class actions. This year PWC sees the poorly performing subprime debt market as a possible issue for legal actions.
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