Securities Class Actions Continue to Drop, Stanford Study Finds

Securities class action filings are well below historical averages for the fourth consecutive six-month period, finds a new mid-year report.

According to the report, the 59 filings recorded in the first half of 2007 represent a 42 percent drop from the average semi-annual filing rate of 101 reported for from July 1996 through June 2005.

The report was issued by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research.

The number of filings in the first half of 2007 was slightly above the second half of 2006 total of 53. For the two-year period beginning the second half of 2005, the average semi-annual filing rate was 61 filings, 40 percent below the average observed over the preceding nine-year period.

“We’ve now had two years worth of extremely low filing activity,” explained Stanford Law School Professor Joseph Grundfest, director of the Securities Class Action Clearinghouse and former Commissioner of the Securities and Exchange Commission. “This is starting to look like a permanent shift, not a transitory phenomenon.”

The report identifies less fraud and a strong stock market as possible explanations for the low incidence of securities class action filing activity. The recent decline in filing activity could also be the result of a combination of both factors, offers Grundfest.

However, he says that the two hypotheses do lead to differing expectations for the level of filings in the future. The “less-fraud” hypothesis suggests a significant and permanent shift in the class action landscape. The “strong stock market” suggests a temporary shift in the landscape—one that will change with the strength and volatility of the stock markets.

The shift in the class action landscape that has had an impact on the level of filings will also influence the level of settlements and total settlement dollars in the coming years, the report maintains.

The report also finds that total market capitalization losses associated with filings in the first half of 2007 showed a slight up-tick from 2006, reflecting an increase in the number of filings and an increase in the size of the loss associated with the average filing.

Sources:
The Securities Class Action Clearinghouse at Stanford Law School
www.securities.stanford.edu

Cornerstone Research, Boston, Mass.