U.S. Securities Class Actions Jumped 29% In 2008

U.S. federal securities class action suits in 2008 rose 29 percent over the previous year fueled by the global financial crisis, according to a consulting firm report released recently.

New York-based PricewaterhouseCoopers' "2008 Securities Litigation Study," found federal class action security lawsuits increased by 47, from 163 case filings in 2007 to 210 last year.

"The unprecedented financial events of 2008 eclipsed all other issues during the year," said a statement from Grace Lamont, PwC principal and U.S. securities litigation practice leader and editor of the study.

"What started as the subprime crisis quickly turned into the credit crisis, which soon thereafter became the global financial crisis. Not surprisingly, the majority of filings during 2008 were related to the financial crisis, with investment banks most often named as the defendants," she said.

Excluding the $3.2 billion Tyco settlement in 2007, total settlement value increased about 9 percent in 2008, from $3.3 billion to $3.6 billion in 2008, PwC said.

This is the second year in a row that federal cases have increased after dropping to 109 in 2006. The report noted that the 13 year average stands at 182.

In an interview, Ms. Lamont said the implications for insurers depend on how successful these suits will ultimately be.

She noted that in 2008 most of the suits filed were non-accounting related cases, which in the past have settled for less than accounting related suits.

Sixty-percent of lawsuits filed were non-accounting cases, the first time these cases outweighed accounting related cases since 1996, according to the study.

Many of the suits were filed against Fortune 500 financial services companies, Ms. Lamont noted, and that could be an indicator that the ultimate settlements will be higher because these defendants are assumed to have deep pockets.

Another complicating factor in potential settlements is the federal government involvement in these companies through bailout funds, she said. How that involvement could affect future settlements "remains to be seen," she said.

One thing that has not changed is that senior executives are still the main target of securities suits, Ms. Lamont noted.

And the report found chief executive officers are named as defendants most frequently, a total of 83 listed as defendants in 2008. Chief financial officers were second most named defendants last year, followed by president and chairman.

The report noted that as the United States and other countries around the world repair damage to their economies and financial markets from the recession "companies in all industries should take heed: now more than ever before, they are under the microscope."

A copy of the study is online at www.10b5.com.