Popular anger against deceit and fraud in company stocks and finances may have temporarily exhausted the possibilities for legal targets, according to Stanford researchers.
A report released by the Stanford Law School Securities Class Action Clearinghouse this week announced that shareholders filed fewer securities class action lawsuits in 2009 than in previous years. Last year, 169 federal security class action lawsuits were filed, down 24 percent from the 223 suits filed in 2008.
Federal class action security lawsuits tracked by the Clearinghouse usually involve a group of plaintiffs who claim that a company has fraudulently caused for the inflation of stock prices.
The sharpest decline was in lawsuits against the financial services industry, according to the annual report published by the Law School and Cornerstone Research. The report also found a decrease of 47 percent in lawsuits relating to the credit crisis—from 100 in 2008 to 53 in 2009. Of these 53, only 17 litigations were filed in the second half of the year.
“Every major financial services company has already been sued,” explained Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “That pool is fished out.”
Grundfest added that only one class action can be filed for each alleged wrongdoing, and so most of the litigation arising from the financial crisis has already been filed.
The total maximum dollar loss, a measurement of shareholder losses experienced during the class period, fell by 24 percent to $634 billion. The total maximum dollar loss for litigation related to the credit crisis, however, fell by 38 percent to $459 billion.
The report also sheds light on the movement of the financial crisis. The report indicated that the initial phase of the crisis, when many publicly traded firms saw their stock prices decline dramatically, had ended, Grundfest said.
According to John Gould, senior vice president of Cornerstone Research, the decline in litigations coincided with a decrease in market volatility.
“[The decline] really solidified the understanding that the number of filings really move in step with the volatility in the market,” Gould said.
To conduct the research, Stanford Law School collects raw data, such as filings of new litigations, while Cornerstone Research conducts statistical analysis.
One unusual finding this year was a longer delay between the date that the stock dropped and when the case was filed, according to Gould. The report found a median delay of 100 days; historically, the difference is approximately a month.
However, Gould added that most of the delayed filings are attributed to one plaintiff, Coughlin Stoia Geller Rudman & Robbins.
The historical average since the Clearinghouse began in 1996 is 197 litigations filed per year, 14 percent higher than this year’s finding. Gould estimates that the number of filings will increase again toward that average, although not in 2010.