Financial Services Still A Favorite Class Action Target, PwC Says

"The drop may be partly due to reportedly fewer funds available to pursue cases, causing plaintiffs' counsel to be more selective in the cases they file. There may also have been uncertainty regarding the ability of potential target companies to continue as going concerns," partner Patricia Etzold said in a statement.

The report said the U.S. Second Circuit in New York City continued to see the greatest amount of filing activity with a total of 51 financial-crisis-related filings made during 2009, compared to 99 in 2008.

PwC's study remarked that toward the end of 2009, a notable number of filings were made that had substantially longer time lags than usual between the end of the class period and the filing date.

The average time lag of 218 days in 2009 was found to be almost double the average of 114 days observed since the Private Securities Litigation Reform Act (PSLRA) of 1995, and more than 71 percent higher than the average lag of 127 days measured in 2008.

For the second consecutive year–and for only the second time in the post-PSLRA era–financial services companies bore the brunt of federal private securities filings, PwC found.

Other industry percentages, according to the study, remained consistent with those recorded in 2008. In 2009, financial services companies were named in 41 percent of total filings, or 63 cases.

Although the percentage fell 7 percent (and by 37 cases) from 2008, the financial services industry was still the most frequently sued industry group by far during 2009, and "clearly continued to be the main focus of the plaintiffs' bar," PwC said.

Grace Lamont, PwC partner and U.S. securities litigation and investigations practice leader, cautioned, "Although 2009 saw a decline in the total number of federal securities class action lawsuits, neither financial services firms nor companies in other sectors should take this as license to drop their guard."

The study found a total of 94 settlements were made in 2009 compared to 95 in 2008. Total settlement value in 2009 was $6.1 billion compared to $3.9 billion in 2008–an increase of 56 percent.

PwC said the rise was "substantially due to the $2.989 billion HealthSouth settlement."

Average settlement value in 2009, excluding the HealthSouth settlement, was found to be 20 percent lower than the average settlement amount in 2008. Ten settlements in 2009 exceeded $100 million compared to seven in 2008.

The percentage of 2009 accounting-related cases, the study said, fell to an all-time low since the passage of the PSLRA.

Accounting-related cases represented 37 percent of total federal filings in 2009 compared to the 41 percent noted in 2008 and an average of 59 percent since the passage of PSLRA.

In dollar terms, accounting-related settlements continued to outpace non-accounting-related settlements in 2009 by 69 percent. Total accounting-related settlements amounted to $5.3 billion in 2009, representing 87 percent of the year's total settlement value.

Filings against foreign issuers (FIs) fell in 2009, according to the report. The 20 federal securities class actions filed against FIs in 2009 represented a drop of 16 cases (or approximately 44 percent) from 2008′s all-time high of 36 cases.

Eleven of the FI cases filed, or 55 percent, were against European companies, a 22-percentage-point increase when compared to 33 percent in 2008. The number of settlements fell from 19 in 2008 to 9 in 2009, a drop of 53 percent. The average settlement, however, increased by 65 percent–from $23.1 million in 2008 to $38 million in 2009.

"It is not evident why, in a year when investors continued to suffer significant losses in the market, the plaintiffs' bar filed almost 50 percent fewer cases against FIs than it did in previous years," said Ms. Etzold.

Plaintiffs continue to pursue the biggest firms, it was noted. The study said filings against Fortune 500 companies decreased by 3 percent in 2009, falling to 20 percent from 23 percent in 2008. Despite the drop, 2009′s figure represents the third-highest percentage of total filings against Fortune 500 companies to occur in any single year since passage of the PSLRA, according to the PwC.

In 2009, 17 filings had some form of Securities and Exchange Commission involvement. As a percentage of total cases filed, this represented a year-over-year decrease of 8 percent–falling from 19 percent of total filings in 2008 to 11 percent in 2009, the study found.

Major enforcement cases listed during 2009 included actions involving subprime-related securities, auction rate securities (ARS), fraud and Ponzi schemes, insider trading, and financial fraud and issuer disclosure, said PwC.