Advisen hosted a webinar and wrote a white paper that reviews its analysis of 2010 securities litigation and discuss the larger implications for underwriters, brokers and risk managers. The 14-page white paper entitled “Securities Litigation Remains Escalated” is sponsored by ACE.
In a quarter marked by the signing of the Dodd-Frank financial reform, establishing future governance burdens, plaintiffs’ attorneys had no problem finding current complaints to file. The number of securities lawsuits filed in the quarter, including derivative actions, regulatory suits, and securities class action suits, among others, remained at inflated levels. At 284 securities suits filed, Q3 2010 was a bit higher than the robust second quarter at 278, and, on an annualized basis, above the 1,105-level of the credit crisis frantic-2009.
As litigators moved beyond credit crisis-related suits, 2010 was expected to become a winding-down period, a respite between scandals and legal flashpoints. The first quarter cooperated with filings around the 2007-level. The past two quarters, however, came in at crisis-like levels. The second quarter contended with the BP oil spill and its resultant lawsuits, but the third quarter had no apparent crisis to speak of, yet filings remain high. Credit crisis- and Madoff-related new filings have indeed dwindled to almost nil, leading to securities class action suits to slide to 20 percent of all suits filed in the third quarter, and securities fraud cases were at pre-crisis levels.
The raging bull of the year thus far has been breach of fiduciary duty suits, with approximately a third of all new security suit filings in Q3 2010. These suits are usually brought by shareholders of an acquired company claiming that directors and officers accepted a “low-ball” bid. Although somewhat resurging M&A activities in the U.S. have partially contributed to this phenomenon, it appears that plaintiffs’ attorneys are seeking new revenue streams as securities class action suits decline, all the while seeking out friendly state courts where most of these suits reside. Low company valuations in a tough business environment, coupled with frugal buyers demanding value, has added fuel to the fire for shareholders feeling cheated.
Looking ahead, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) almost certainly will have a significant, though at this point unquantifiable, impact on securities litigation. The Dodd-Frank Act contains a number of governance-related provisions that will affect all U.S. public companies, and in many ways is an extension of Sarbanes-Oxley. It will, however, place more stress on financial firms and their directors and officers. Its “clawback” provision is a highlight, as well as its expansion of federal court jurisdiction over certain non-U.S. issuers for actions brought by the SEC and Department of Justice (DOJ), certainly a response to a recent Supreme Court ruling.
On October 15, Advisen hosted a webinar that reviewed securities litigation in the third quarter of 2010. Learn more about the webinar, download slides, and listen to webinar audio: Quarterly Securities Litigation Review Q3 2010: Securities Litigation Remains Escalated
Download the white paper Securities Litigation Review Q3 2010: Securities Litigation Remains Escalated