PwC: Federal Class Action Filing Activity Increased in 2010

Even though the number of cases related to the financial crisis dropped, overall federal class action filing activity rose last year, reaching its second highest level in the last five years.

The 15th annual Securities Litigation Study, released earlier this month by PwC US, found that the total number of filings for 2010 (174) jumped by 12 percent from 2009 (155) an increase PwC says is driven in part by the signing of the Dodd-Frank Act last July.

"The anticipated effects of Dodd-Frank, and particularly the whistleblower program, could lead to a reinvigorated volume of reported securities violations and associated class actions," Grace Lamont, partner and US securities litigation and investigations practice leader for PwC, said. "Other exogenous factors, such as the possibility of WikiLeaks targeting specific industries and the advances in global communication and networking access, may have far larger implications."

The most commonly sued industry remains the financial industry. The health industry came in second, followed by the technology industry. Not surprisingly, the utilities industry, specifically oil and gas, experienced the highest percentage increase of filings for any one industry during 2010 due to an increased number of cases related to mergers and acquisitions (M&A) and the Gulf oil spill.

PwC's 2010 study also found:


A shift in filings from east coast to west coast. The single largest number of filings in 2010 was recorded in the Ninth Circuit, ending the dominance of the east coast, and specifically the Second Circuit, which since 2005 has seen more filings annually than any other. Last year, 30 percent of filings were in the Ninth Circuit, compared to 24 percent in the Second Circuit.


An increase in filings against foreign private issuers (FIs). Filings against FIs increased during 2010 by 35 percent. Fifteen of the FI cases filed, or 56 percent, were against Asian companies, which was almost three times the number filed in 2008 or 2009. In addition, an unprecedented 12 cases (44 percent) were filed against Chinese companies in 2010. Aside from the cases brought against China-based entities in 2010, cases were brought against companies headquartered in Japan, South Korea, and Singapore.


The percentage of accounting-related cases continues to fall. Accounting-related cases as a percentage of total cases fell from 37 percent in 2009 to 35 percent in 2010, dropping to the lowest level in 15 years (since the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA)). The percentage of accounting-related cases relative to total filings measured each year has been less than 50 percent for only 4 of the last 15 years analyzed.


No reprieve for directors and officers. The majority of 2010 federal filings continued to name directors and officers. Notably, almost all of the categories of directors and officers named increased from last year.


A decrease in filings against Fortune 500 companies. In 2010, 14 percent of filings were directed at Fortune 500 companies, compared to 20 percent of filings in 2009. The percentage of 2010 filings approximated pre-financial-crisis levels.

More information about the annual study is available at http://www.10b5.com.

TAGS: Finance
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