Securities Litigation On Track to Set New Record in 2011: Advisen

Securities suit filings are on track to set a new record in 2011 once again.

Following on the heels of the credit crisis, which sparked record-setting litigation in 2008 and 2009, 2010 set yet a new record at 1,293 suits filed. Based on the number of suits filed in the first quarter, 2011 may surpass last year’s all-time high, according to Advisen Ltd.’s most recent quarterly report on securities litigation, sponsored by ACE.

The 362 securities suits filed in Q1 2011 were up a bit from 342 filed in the previous quarter, and were 47 percent above Q1 2010. Perhaps more significantly, the quarter’s annualized rate of 1,448 new filings is 12 percent higher than total 2010 filings. The totals include shareholder derivative suits, breach of fiduciary duties suits and securities fraud suits, a category comprised primarily of actions brought by regulators and law enforcement agencies, as well as securities class action suits.

“The credit crisis was a watershed event in securities litigation,” said John Molka III, the author of the report. “The easing of the credit crisis, however, has not resulted in fewer securities suits being filed. To the contrary, the number continues to grow. The elevated level of filings in 2010 and 2011 may represent a ‘new normal.'”

“Security fraud suits comprised the largest portion of first quarter filings, reflecting vigorous enforcement activities by regulators, but the breach of fiduciary duties category has been the real driver of growth, said Dave Bradford, Advisen executive vice president. He said many of these are so-called merger objection suits, which typically are filed following the announcement of a merger or acquisition. Most of these suits are filed in state courts.

Securities class action represented 18 percent of new filings. Previously, securities class action suits had accounted for more than one third of securities suits filed, but that percentage has been decreasing as breach of fiduciary duties suits and other types of suits have become more common. Securities class action suits continue to account for most of the largest settlements, however. In the first quarter, the average securities class action settlement was $54.6 million, according to the report.