Recent Trends in Securities Class Action Litigation: 2009 Year End Update

Tue Dec 15 15:24:38 EST 2009
By Dr. Stephanie Plancich and Svetlana Starykh

The credit crisis, now in its third year, and related financial sector turmoil continued to fuel new federal securities class action filings in 2009, though the pace of these credit crisis cases slowed in the second-half of the year, according to this newly released edition of NERA's semi-annual study. Co-authored by Vice President Dr. Stephanie Plancich and Senior Consultant Svetlana Starykh, the study draws from more than 15 years of NERA research on case filings and settlements in securities class actions, and includes data on filings and dismissals through 30 November 2009, and settlements through 31 December 2009.

The latest edition shows that securities class action filings are expected to reach 235 cases in 2009, down from 253 filings in 2008. While filings may have declined year-over-year in 2009, they still greatly exceed the 130 filings in 2006, before the start of the credit crisis. Although the credit crisis continued to drive filings activity in 2009, with over 60 credit crisis cases filed through 30 November, the pace of these cases has gradually declined throughout the year. Credit crisis-related filings in the first half of 2009 outnumbered second-half filings by approximately two to one.

In 2008, over 40% of cases filed were credit crisis cases. To date in 2009, however, this proportion has decreased to around 30%. According to the authors, one source of the increase in securities class action filings in 2009 is the wave of filings on behalf of investors in various exchange-traded funds (ETFs), a new litigation phenomenon. In these cases, investors typically allege that the defendants failed to disclose risks and the probability of potential losses associated with the investments. Thirteen ETF-related securities class action cases were filed between August and November 2009.

While filings have been driven to higher levels over the past three years following the credit crisis, median settlements have remained similar in 2007, 2008 and 2009, at approximately $9 million.