Securities Lawsuits Set New Record Despite Slowdown in Credit Crisis

January 21, 2011

The number of securities lawsuits filed in 2010 edged above the record number of suits filed in 2009, despite an easing of litigation related to the credit crisis.

The number of new suits related to the recent credit crisis fell sharply in 2010, but the void was more than filled by suits sparked by mergers and acquisitions, as well as litigation driven by the Deepwater Horizon oil spill and other headline-grabbing occurrences, according to the latest quarterly review of securities litigation by Advisen Ltd., sponsored by Kaufman Dolowich Voluck & Gonzo LLP.

“No one event accounted for the record level of securities suits filed in 2010,” according to John W. Molka, III, the author of the report. “To the contrary, the year was characterized by diversity. The most significant trend was the continued growth of suits filed in both federal and state courts alleging breach of fiduciary duties by company directors. This type of suit typically is filed as a result of a merger or acquisition. We expect to see even more of these suits as M&A activity picks up.”

The unprecedented 1,196 lawsuits filed tops the previous record 1,171 suits filed in 2009, a year dominated by litigation arising from the credit crisis, according to Advisen.

While the total number of securities-related suits increased in 2010, the number of securities class action suits fell sharply: 193 as compared to 233 in 2009. Securities class action suits accounted for more than one third of securities suits filed prior to 2006, but represented only 16 percent of the 2010 total. Securities fraud suits, a category defined by Advisen to consist principally of suits brought by regulators and law enforcement agencies, made up 34 percent of the total.

Breach of fiduciary duties suits were a close second with 33 percent of all securities suits filed in the year, and led all other categories of suits by the fourth quarter.

“The decrease in securities class action suit filings is tied to the sharply lower number of credit crisis suits filed,” said Dave Bradford, Advisen’s executive vice president. “As the credit crisis subsides, plaintiff attorneys are turning their sites to other types of suits. The number of shareholder derivative suits was up in 2010, as was the number of so-called merger objection suits alleging breach of fiduciary duties.”

Financial institutions and their directors and officers were prime targets for credit crisis lawsuits in 2007, 2008 and 2009. Though the credit crisis waned in 2010, plaintiff attorneys continued to favor financial institution defendants: 30 percent of all securities suits filed named financial firms or their directors and officers. Information technology and healthcare companies came in a distant second and third.

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