Securities class action filings drop sharply

The decline is largely due to a drop in M&A and Chinese reverse merger filings

Corporate America’s reputation took a hit during the financial crisis, but, in a potentially encouraging sign for business, the number of federal securities fraud lawsuits seeking class-action status fell to its lowest number in six years in 2012, according to a new study by Stanford Law School and Cornerstone Research.

Last year saw 152 such suits, down from 188 in 2011. Filings against large companies hit their lowest point in 13 years in 2011 and 2012, as only one of every 29 Standard & Poor’s 500 companies faced a new securities class action filing last year. Filings targeting financial sector companies also decreased, to 15 filings in 2012 compared with 43 in 2010.

Much of the overall decline can be attributed to drops in the number of merger and acquisitions and Chinese reverse merger filings, according to Cornerstone, which said in its analysis that “these waves of cases are most likely over, and future filings of these types are likely to remain at very low levels.”

But the decline in securities class actions may not last forever, particularly if the Securities and Exchange Commission’s whistleblower program leads to more fraud tips, according to Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “The current quiet patch in private securities fraud litigation could certainly be unsettled if the Dodd-Frank bounty program generates a new wave of private claims,” Grundfest said in a statement.

For more InsideCounsel coverage of fraud lawsuits, see:

Supreme Court will hear law firms’ appeals in Allen Stanford case

Investors sue Cozen O’Connor, Blank Rome for $27 million

Opt-outs: A growing trend in securities litigation

5 ways to prevent discount and warranty fraud

Peter Madoff gets 10 years behind bars

Ex-Mayer Brown CIO charged in alleged $5 million theft

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