Recent Trends in Securities Class Action Litigation: Will Enron and Sarbanes-Oxley Change the Tides?
10 July 2003
By Dr. Ron Miller et al.
This newly released study looks at federal class action litigation filings, settlement values, and dispositions between January 1991 and late June 2003. The report reveals that, contrary to some expectations, the rate of securities class action filings -- as well as the average value of litigation settlements -- so far appear unaffected by either public indignation over the Enron corporate scandal or the subsequent passage of Sarbanes-Oxley (SOX) anti-fraud legislation.
The study identifies the following trends since the Enron scandal and the passage of Sarbanes-Oxley legislation, including:
- Securities class action filings did not increase dramatically after Sarbanes-Oxley. From the bill's passage on July 25, 2002 until late June 2003, securities class action suits were filed at an annual rate of 214, comparable to the average rate of 208 filings per year between 1996 and 2001;
- Filings did not increase after the Enron scandal came to light, occurring at an annual rate of 212 from November 2001 through late June 2003, comparable to the average annual rate in previous years;
- Dismissals have fallen sharply since SOX, with only half as many cases dismissed since its passage as in the previous 11 month period; and
- Average settlement values actually fell modestly in the first ten months after SOX passed, dropping from $25.5 million for the period of January 1996 - July 2002 to $22.7 million for the period of August 2002 - June 2003. They remained unchanged after the Enron scandal.
The study also looks at developments since the Private Securities Litigation Reform Act of 1995 (PSLRA) which aimed to reduce frivolous litigation by raising the burden on plaintiffs in securities class actions. The authors assert that the increase in securities litigation occurring despite this legislation "suggests that the plaintiffs' bar is pursuing fraud more aggressively since PSLRA, rather than being limited by it."
