'09 Securities Suits Increased 13 Percent, Advisen Finds

NU Online News Service, Jan. 25, 3:33 p.m. EST

After years of downward trending, securities suits jumped 13 percent in 2009, adding to a dramatic increase in litigation at the peak of the economic crisis in 2008, Advisen Ltd. said.

In its report, "Securities Suits Abound in a Harsh 2009," the consulting firm said that all securities suits for 2009 stood at 910, a jump from 2008′s 804 suits. That number was a sharp increase in securities suits from 2007 of 33 percent.

Advisen said the economic turmoil was the primary driver of the suits with securities fraud cases up 22 percent, reflecting "heightened regulatory vigor" for a total of 340 cases. These suits also accounted for 37 percent of all cases filed.

Securities class-action suits remained a significant number of the total with 234 suits in 2009, close to the 239 cases registered in 2008.

However, Advisen noted what was more significant was that the number of class-action suits dropped as a percentage of the whole by a quarter, continuing a long-term trend. But the suits "remain a vital watermark for securities litigation trends," the report said, and in 2009 award and settlements averaged $32 million and for the fourth quarter averaged $37 million.

Most of the top settlements and awards for the fourth quarter were the class-action suits.

The highest class-action settlement for the fourth quarter of 2009 was a suit filed against Marsh & McLennan and settled for $400 million. The suit stemmed from allegations the company received kickbacks in the form of hidden contingent fees as part of a scheme in which it made hundreds of millions of dollars in profits from steering customers to insurers that rigged bids.

"Litigators and regulators stayed busy in 2009," John W. Molka III, the author of the report, said in a statement. "The first half of the year was dominated by credit crisis- and Madoff-related lawsuits. Those types of suits fell off sharply in the second half, but plaintiff's attorneys had a backlog of other cases waiting to be filed."

"Securities class-action suits filed in federal courts account for many of the largest settlements, but every year they represent a smaller percentage of the total number of securities suits filed," Dave Bradford, Advisen's executive vice president, said in a statement.

"A growing threat to companies and their directors is escalating enforcement actions and lawsuits by regulators. Also, breach of fiduciary duty suits and other securities suits filed in state courts are on the rise," he warned.

While many of these suits trigger directors and officers insurance, Advisen said that due to the nature of these suits involving Bernie Madoff and other Ponzi scheme issues, it could bring errors and omissions and fiduciary liability policies into play. This will be especially true where the D&O policy does not cover the actions alleged in the suit.

The report is available at http://corner.advisen.com/reports_topical.html