Federal securities class action activity declined in the first half of 2009, with a particularly significant decline in the second quarter, according to "Securities Class Action Filings -- 2009: Mid-Year Assessment," an annual report prepared by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research.
A total of 87 federal securities class actions were filed in the first half of 2009, a 22.3% decline from the 112 filings in both halves of 2008. Only 35 filings were observed in the second quarter, the lowest quarterly total since the first quarter of 2007.
Financial services firms are defendants in 66.7% of these filings, an increase over the 50% share of all filings in 2008.
This report introduces a new metric, the Class Action Filing-Foreign Index (CAF-F Index), that measures the number of securities class action filings in U.S. federal courts against defendant corporations headquartered outside the United States. Federal securities class action lawsuits against issuers with non-U.S. headquarters ("foreign firms") have been rising for more than a decade and reached 31 filings (13.8% of total filings) in 2008, with an average of 18 foreign firms (9.4% of total filings) sued in each year since 1997.
Thus far in 2009, 18 lawsuits have been filed against foreign firms, representing 20.7% of the total. Filings against foreign firms are concentrated in the financial sector, as 41.9% of the filings in 2008 and 77.7% of the filings in the first half of 2009 were against financial firms.
"A disproportionate number of recent claims against foreign firms target the financial services sector. The uptick in litigation activity against foreign firms can therefore be viewed as a side-effect of the larger trend to sue financial services firms, wherever they are headquartered. The key question for the plaintiffs is whether they can get jurisdiction in the U.S. courts," explained Professor Joseph Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research.
Key Findings
- If the filing rate for the first half of the year continues, then 174 securities class actions will be filed this year, a 22.3% decrease from 2008 and an 11.7% decrease from the annual average for the 12 year period ending December 2008.
- About half of the filings so far in 2009 were driven by the credit crisis, with 42 filings in the first half of the year containing allegations related to the credit crisis.
- The dramatic decline in the number of class action filings is contemporaneous with a 43.7% decline from the fourth quarter of 2008 to the second quarter of 2009 in stock market volatility as measured by the Chicago Board Options Exchange Volatility Index (VIX).
- The number of filings against unique issuers on major U.S. exchanges decreased in the first half of 2009 on an absolute level and as a percentage of total filings. This decline was driven by a large number of filings related to non-exchange-traded securities and private companies in the first half of 2009.
- There were 15 filings related to Ponzi schemes thus far in 2009. The majority of these lawsuits, 11 filings, were on behalf of investors in Madoff funds, with most suits targeting so-called feeder funds, hedge funds, and other financial intermediaries that invested their clients' money with Madoff.
