Bankruptcies Take Off

During the opening session, Samuel Rudman, a partner with Couhglin Stoia Geller Rudman Robbins in New York who typically represents investors in securities class actions, noted that his firm is now seeking to represent creditor committees and litigation trusts in bankruptcy actions.

At a later session, Randall Bodner, a partner for Ropes & Gray, LLP in Boston, a former assistant district attorney who assists companies with securities regulation matters, noted that because other assets are tapped out, for companies in bankruptcy, "a material asset is frankly the claim against former directors and officers--against the D&O insurance policy that's there."

At a separate session, David Bradford, executive vice president of New York-based Advisen, noted that bankruptcy filings are set to take off, and with them securities class action filings against large public companies that file for bankruptcy.

In 2008, the average level of bankruptcies in the United States was 41,200, Mr. Bradford said, citing data from Euler Hermes. In 2009, the same source projects the figure will leap up about 50 percent, he said.

In addition, he noted there are various estimates of defaults of corporate bonds and bank loans ranging from $450 billion to $500 billion. "This is interesting because this is for companies that are not otherwise in trouble. It's simply that debt is maturing and it can't be refinanced, so you have defaults," he said, later noting that bankruptcies are spread across an array of industry sectors.

Going on to reveal details of an Advisen analysis of the relationship between the number of bankruptcies and securities class action suits, Mr. Bradford said that while there was no particularly strong correlation between the two data sets, when Advisen focused in on just the bankruptcies of large public companies--those with assets greater than $250 million--"the correlation is actually quite striking."

In addition, he said that while 35 percent of large companies filing for bankruptcy had suits filed against them within a year of the filing historically (based on statistics dating back to 1995), in the last two years, more than three-quarters of large companies (77 percent) that filed for bankruptcy were also named in a securities class action lawsuit.