After dominating securities litigation for three years, new securities lawsuit filings related to the global credit crisis all but disappeared in the first quarter of 2010.
According to Advisen Ltd’s latest quarterly report on securities litigation, overall new securities lawsuit filings were down sharply. Additionally, several high profile credit crisis lawsuits were dismissed during the quarter by judges unwilling to hold corporate directors and officers responsible for the effects of a worldwide financial crisis.
“The securities litigation landscape now looks more like it did prior to 2007, before the meltdown of the subprime mortgage market and the credit crisis sparked hundreds of lawsuits, largely against financial institutions,” said John Molka III, the author of the report sponsored by ACE. “The number of filings was down 39 percent compared to the first quarter of 2009, and only one of the new filings was related to the credit crisis.”
Of the 178 first quarter filings, one third were “securities fraud” cases filed principally by regulators and law enforcement agencies. Breach of fiduciary duty suits, largely filed in state courts, accounted for 31 percent of the total and securities class action suits comprised 21 percent of new securities suit filings. The number of securities class action suits filed as a percentage of total securities suits filed has been steadily falling since 2004.
In addition to the near-disappearance of new suits related to the credit crisis, only one suit filed during the quarter was triggered by the Bernard Madoff Ponzi scheme. Madoff-related suits dominated securities lawsuit filings in the first quarter of 2009.
The first quarter also saw a number of closely watched credit crisis suits dismissed. Among the 13 credit crisis securities suits dismissed during the quarter were suits filed against American International Group, Lehman Brothers, bond insurer MBIA and Merrill Lynch. While it remains to be seen whether credit crisis suits are dismissed at a higher than normal rate, judges appear reluctant to blame the results of the economic crisis on company management.
“Not all motions to dismiss were successful during the first quarter, but a clear trend seems to be emerging,” said Dave Bradford, Advisen executive vice president. He said that of the 348 credit crisis-related securities cases filed, 32 have been settled as of the end of Q1 2010, and 62 dismissed.
Although there were almost no credit crisis suits filed, financial firms were nonetheless named in 31 percent of new filings in the first quarter. However, new filings were overall more widely spread throughout the economy, and are expected to remain broadly diversified as bankruptcies and mergers and acquisitions spark new securities litigation.
The Advisen report, Securities Suits Ease Back to Normal Following a Frantic Two Years, a first quarter review of securities litigation and its impact on the D&O market can be downloaded for no charge at the Advisen Corner Store, http://corner.advisen.com/reports_topical_sec_normal_home.html.
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