Recent Developments And Trends In Securities Litigation.

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Recent Developments And Trends In Securities Litigation.

Article by Seth Aronson , Dhaivat H. Shah and Roberta H. Vespremi

Originally published July 2009

Please click on the following link to read this article and its footnotes in full: Recent Developments And Trends In Securities

I. INTRODUCTION 2008 and 2009 have seen the continued upwards trend of securities class action filings that began in 2007. There were 210 federal securities class actions filed in 2008, an increase of 29% over 2007.1 In the first two quarters of 2009, there were over 85 class actions filed.2 If this trend continues, there will be over 170 securities class action filings in 2009, consistent with the average pace of 182 filings per year since the enactment of the Private Securities Litigation Reform Act of 1995 (the "Reform Act").3

The trend resulted in large measure from the continued upsurge of securities class actions related to the worldwide financial crisis, including the subprime mortgage meltdown. In 2008, there were a total of 98 actions filed directly related to the financial crisis, roughly 47% of the total securities class actions filed.4 For the first time since the enactment of the Reform Act, the plaintiffs' bar filed more class actions against the financial services industry than any other industry.5 An emerging subset of the financial crisis cases and government investigations is related to auction rate securities. The SEC reached record-breaking settlements with firms charged with misleading investors about the liquidity risks associated with auction rate securities that they underwrote, marketed and sold.

The number of back-dated stock-option-related securities class actions, by contrast, fell dramatically. Only four actions were filed in 2008, and none in the first two quarters of 2009.6 This fall off is not surprising, as the stock options news scandal broke in 2006, and most filings occurred soon thereafter.

There were several other trends of note in 2008-09. The number of accounting-related securities class actions fell to the lowest numbers since the passage of the Reform Act --comprising 40% of cases filed in 2008.7 The number of settlements in 2008 fell to the lowest number in the past ten years--for a total of 95 settlements compared with 121 in 2007.8 Finally, there were 36 securities class actions filed against foreign private issuers in 2008, a 33% increase over 2007.9 Over half of these matters were related to the financial crisis, with the bulk of foreign companies affected being Canadian companies.10

Other interesting developments this year included the Bernard Madoff scandal that broke open in December 2008, quite possibly the largest Ponzi scheme ever, with loss estimates reaching $50 billion.11 Further, the United States passed the Emergency Economic Stabilization Act of 2008, "which recommitted t...

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