It was reported recently that fewer investors took corporate wrongdoers in America to court for fraud last year. The number of new federal securities fraud lawsuits seeking class-action status fell to a seven-year low in 2012, according to a study by Stanford Law School and Cornerstone Research released on January 23rd. Just 152 such lawsuits were filed last year, down 19 percent from 188 in 2011, mainly because of fewer lawsuits challenging mergers.
Last year’s total is also 20 percent below the average of 190 for the period from 1997 to 2012. Only 2005, when 120 lawsuits were filed, was a quieter year for new cases. And in last year’s fourth quarter, just 25 new securities fraud lawsuits were filed, the fewest in any quarter since 1997, the first year included in the study. Big companies also were sued less in 2012 than in prior years. Seventeen companies in the Standard & Poor’s 500 index were named as Defendants in 2012, versus an average of 31 over the prior decade. According to the study, just 13 merger-related securities fraud lawsuits were filed in federal courts last year, down from 43 in 2011.
The number of lawsuits tied to initial public offerings of Chinese companies, including those with questionable accounting, also declined sharply, falling to ten from 31. Interestingly, no new lawsuits tied to the 2008 financial crisis were filed last year. There was an increase in the number of lawsuits involving more traditional securities fraud claims, such as a failure to disclose market-moving news sooner. Stanford and Cornerstone said the U.S. Securities and Exchange Commission’s whistleblower program, begun after passage of the Dodd Frank financial reforms, could result in more lawsuits being filed.
The SEC has said in a report that it received 3,001 tips from October 2011 to September 2012. Nearly half related to corporate disclosures and financials, fraud in securities offerings or manipulation. It gave its first whistleblower award, of nearly $50,000, in August. According to Joseph Grundfest, a Stanford law professor and former SEC commissioner, a successful SEC whistleblower program could result in more private lawsuits. He stated:
The question is how many cases the SEC brings, how strong those cases are, and how easily will private party Plaintiffs be able to ‘piggyback’ on disclosures from the commission’s complaints.
It will be interesting to see how things develop this year. We are seeking more potential cases in this area in our firm. Most are in the investigative stage at this juncture. If you need more information on any aspect of securities litigation, or cases our firm is handling, contact Michelle Fulmer at 800-898-2034 and she will have the appropriate lawyer contact you.
Source: Insurance Journal
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