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Study Shows A Big Spike in Class Action Securities Lawsuits

Posted on 21 Jan 2011

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According to a study released Thursday by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research, the number of class action securities lawsuits filed in U.S. courts rose in the past six months and there was a big spike last year in litigation over merger disclosures.

There were 104 federal securities class action lawsuits filed in federal courts between July and December, up from 72 filed in the first six months of 2010, according to a study.

The total number of lawsuits ticked up to 176 from 168 in 2009, although last year's filings were still below the annual average of 195 since 1997.

One area with a big increase were lawsuits filed over the lack of disclosure relating to a merger, which rose to 40 from seven in 2009.

"The sharp increase in federal litigation alleging disclosure violations in M&A transactions suggests that plaintiff lawyers are scrambling for new business as traditional fraud cases seem to be on the decline," said Joseph Grundfest, the director of the Stanford Law School Securities Class Action Clearinghouse.

He attributed the spike to a strategy by plaintiffs lawyers looking for a way to exert control over merger-related lawsuits, which are usually filed in state courts. And he expected the trend to continue.

There was a jump in cases relating to the healthcare industry and cases brought against Chinese companies, while lawsuits against financial companies and those relating to the credit crisis tailed off.

"With the wave of credit-crisis filings behind us, the industry focus for class action filings shifted to healthcare, where more than one out of every seven S&P 500 companies was involved in a class action," said John Gould, Senior Vice President of Cornerstone Research.