Report: Market volatility sparks increase in securities class action filings

Chris Rizo Jul. 29, 2008, 11:11pm

Joseph Grundfest

PALO ALTO, Calif. (Legal Newsline)-During the first half of 2008, the number of securities class action filings have continued to climb, a study found.

Stanford Law School's Securities Class Action Clearinghouse, in a report released Tuesday, said the number of securities class action filings began to climb in the second half of 2007, following two years of fewer case filings.

The center said there were 110 filings between January 1 and June 30, 2008, suggesting there might be as many as 220 filings by the end of the year.

Researchers said the increase in case filings has coincided with increased volatility in the markets.

They said about half of the filings in the first half of 2008 related the nation's subprime mortgage crisis and global credit crunch, with 58 filings containing related allegations.

Of those, 17 involved auction rate securities for which the interest rate is reset through a dutch auction.

"We continue to witness the dramatic effects of the subprime market meltdown, with half of the filings so far this year linked to the subprime/credit crunch disaster," said Joseph Grundfest, co-director of the Rock Center on Corporate Governance and former U.S. Securities and Exchange commissioner.

The report also found that the nation's financial sector had the most securities class action filings for the third straight six-month period.

The study said there were 63 filings in the first half of 2008, up from 30 in the second half of 2007 and 19 in the first half of 2007.

"We have also seen a sharp increase in defendant firms' average market capitalization losses associated with filings. The median loss in the first half of 2008 was $243 million, more than twice the historical average," said report contributor John Gould.

"Not since the period of heightened filing activity in 2000-02 have we seen market capitalization losses of this size among defendant firms," added Gould, vice president at Cornerstone Research, which provides financial and economic analysis in litigation and regulatory proceedings.

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