Who’s Getting Sued in Securities Class Action Lawsuits Now?

Financial Services and Life Sciences Companies Should Be on the Lookout

To find out which company will be next in line for one of these insult-to-injury lawsuits, just keep a close eye on the headlines.

Securities class action lawsuits are the most important factor driving claims severity for directors and officers (D&O) insurers. Securities lawsuit filings levels ebb and flow over time, and for most of 2010, securities suit filings levels have been relatively low. But a series of recent high-profile events has triggered and uptick in filing activity. With the arrival of the most recent cases, it is worth taking a look at who is getting hit with securities suits.

The most noteworthy class action lawsuit targets so far this year are companies caught up in major public relations crises. This pattern started when Toyota’s sudden acceleration debacle led to a host of securities class action lawsuit filings. The pattern has been perpetuated in connection with the most recent public relations disasters.

Thus, after Massey Energy’s coal mining disaster, a securities class action lawsuit soon followed. Likewise, after Goldman Sachs became the target in a high-profile U.S. Securities and Exchange Commission (SEC) enforcement action, investors quickly filed a shareholder suit against the company and its senior management.

The Deepwater Horizon oil spill has generated extensive litigation, including significant corporate and securities litigation. Both BP and Transocean, the platform’s owner and operator, have been sued in securities class action lawsuit in Louisiana. Shareholders also have filed a derivative lawsuit against BP, as nominal defendant, and certain of its directors and officers, alleging that the company’s senior officials breached their duties to the company by failing to adopt appropriate safety measures.

Headline-Driven and Belated Suits

To find out which company will be next in line for one of these insult-to-injury lawsuits, just keep a close eye on the headlines – that seems to be what the plaintiffs’ lawyers are doing.

Another category of recent lawsuits looks completely opposite from the headline-driven lawsuits. Beginning around the middle of 2009, one phenomenon that developed was the emergence of belated lawsuits, where the filing date was as much as a year or more after the proposed class period cutoff date. Several of the most recent filings reflect this belated filing pattern.

For example, on May 11, 2010, plaintiffs’ lawyers initiated a securities class action lawsuit in the Southern District of New York against Pfizer and certain of its directors and officers. The proposed class period cutoff date was Jan. 23, 2009, nearly 16 months prior to the initial filing date.

Similarly on May 12, 2010, plaintiffs’ lawyers initiated a securities class action lawsuit in the Western District of North Carolina against CommScope and certain of its directors and officers. The proposed class period cutoff date was Oct. 30, 2008, more than 18 months before the initial filing date.

And on May 6, 2010, plaintiffs’ lawyers filed a complaint in the District of Delaware against Heckmann Corp. and certain of its directors and officers, in which the proposed class period cutoff date was May 8, 2009, just short of one year before the filing date.

Similarly belated filings have been an important aspect of the 2010 year-to-date securities class action lawsuit filings. Of the approximately 60 securities class action lawsuit filings this year, 11 (or about 18 percent) have been first filed at least one year after the proposed class period cutoff date. Perhaps more significantly, many of the most recent filing in May 2010 have been among these belated cases.

Financial Services

One trend that has not changed in the past several years is the importance of securities litigation involving financial services companies. Since the beginning of the subprime-related litigation wave in 2007, lawsuits against financial services companies have been predominant among all filings. Although the proportion of filings against financial firms began to diminish around mid-2009, lawsuits against financial companies still represent the largest proportion of securities class action filings so far in 2010.

While the roughly 60 entities against which securities class action lawsuits have been filed so far this year represent 29 different Standard Industrial Classification (SIC) Code categories (and 10 of the 60 lack any SIC Code classification), 17 of the 60 (or about 28 percent) involve companies in the 6000 SIC Code series (Finance, Insurance and Real Estate). Most of the entities lacking SIC Code designations also are financially related, and lawsuits filed against these two groups (that is, the 6000 SIC Code series entities and the entities without SIC Code designations) represent about 45 percent of all 2010 lawsuits.

The most noteworthy difference among the 2010 lawsuit filings involving financial companies compared to the most recent prior years’ filings is the number of commercial banks among the financial companies that have been sued. Indeed, several of the most recent filings have targeted failed or troubled banks, including for example the May 12, 2010, lawsuit filed against BancorpSouth, the May 7, 2010, lawsuit against First Regional Bancorp, and the April 15, 2010, lawsuit against Frontier Financial.

These lawsuits against failed and trouble commercial banks are likely to remain a significant factor in securities lawsuit filings for the foreseeable future. Nearly 240 banks failed between Jan. 1, 2008, and May 21, 2010. In addition, the FDIC categorized more than 770 banks as “problem” institutions in its quarterly banking profile for the first quarter of 2010. Given the magnitude of these problems, the probability is that litigation will continue to arise out of the banking sector.

Life Sciences

Although lawsuit filings against financial companies have continued to predominate among all securities suit filings, lawsuits against life sciences remain a familiar and important accompanying theme. With six lawsuits so far this year in the 283 SIC Code series (Drugs) and four more in the 384 SIC Code series (Surgical, Medical and Dental Instruments), lawsuits against life sciences companies remain an important part of 2010 lawsuit filings, as they have been in the past.

Several of the most recent lawsuit filings have involved life sciences companies, including the May 11, 2010, filing against Pfizer noted above, and the May 11, 2010, filing against NBTY. Indeed, 2010 filings that don’t involve either a financial services company or a life sciences company are in the distinct minority.

In short, many of the recent filings reflect the latest developments in the headlines as well as the continuing problems from the credit crisis. Other recent filings reflect patterns that have emerged over the course of recent years. The most important conclusion from these observations is that the plaintiffs’ lawyers continue to file securities class action lawsuits in significant numbers, and the possibility of a securities class action lawsuit remains a significant exposure for every publicly traded company, particularly those in the financial services and life sciences sectors.

Topics Lawsuits