New securities lawsuits sparked by the credit crisis have all but disappeared, but the pace of securities lawsuit filings in the third quarter continued at elevated credit crisis-like levels.
With 284 suits filed in the third quarter, 2010 is on target to surpass the 2008 total of 928 suits filed and will likely draw near to the unprecedented 1,105 new filings in 2009, according to a new report, “Securities Litigation Remains Escalated,” from Advisen Ltd, sponsored by ACE.
“With the worst of the credit crisis behind us, 2010 was expected to be a comparatively quiet year for securities litigation,” said John W. Molka III, the author of the report. He said the year “began quietly enough,” with 206 suits filed in the first quarter, but the volume of new filings in the second and third quarters has been more typical of the activity seen in 2008 and 2009.
The elevated level of new filings in the second quarter was largely attributable to suits arising from the Deepwater Horizon oil spill. The third quarter, however, had no one event that sparked a large number of suits. Financial services companies and their directors and officers were most frequently named in suits, as was the case throughout the credit crisis, but companies in the information technology and healthcare sectors were close behind.
Suits alleging breach of fiduciary duty accounted for over one-third of new filings. These suits, which often are filed in state courts, typically are brought by shareholders of an acquired company claiming that directors and officers sold the company too cheaply. Securities fraud suits, a category defined by Advisen to be comprised principally of suits brought by regulatory and law enforcement agencies, represented 29 percent of the total, while securities class action suits accounted for 20 percent of new filings.
Securities class action filings have been decreasing as a percentage of total security lawsuit filings since 2004, but still represent most of the largest settlements: five of the seven largest settlements during the quarter were of securities class action suits.
“The credit crisis may have abated, but securities lawyers aren’t taking a break,” said Dave Bradford, Advisen executive vice president. “They are filing fewer securities class action suits, but more suits alleging breach of fiduciary duty. The pace of mergers and acquisitions should pick up as the economy improves, which probably will lead to even more breach of fiduciary duty suits in the coming year.”