Compliance April 7, 2011

Securities Litigation Shifting Away from Financial Industry

Federal class action filing activity increased in 2010, yet the financial services industry is not to blame, according to the 15th annual Securities Litigation Study by PricewaterhouseCoopers (PwC).
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The total number of filings for 2010 was 174, an increase of 12% from the 155 filings in 2009, according to PwC. This is despite a continuing decline in the number of financial-crisis-related filings.   

Rivaling the financial industry’s top spot (though not replacing it), was the health industry as the second most commonly sued industry, followed by the technology industry. The utilities industry, specifically oil and gas, experienced the highest percentage increase of filings for any one industry during 2010 due to an increased number of cases related to mergers and acquisitions (M&A) and the Gulf oil spill.  

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Despite 2010’s decline in the number and percentage of financial-crisis-related cases, overall filings reached the second highest level in the last five years, the announcement said. Certain groups of filings with specific common characteristics—such as those filed against educational companies, M&A-related cases filed across all industries, and health industry cases—all impacted this year’s filings. Cases filed against foreign private issuers (FIs), in particular Chinese FIs, also contributed to the increase.

PwC also found total settlement value in 2010 fell to the lowest level since 2003 and the average value of settlements decreased in 2010 compared to 2009 by 11%, from $34.0 million to $30.1 million respectively. The average accounting-related settlement value of $45.9 million was 319% greater than the average non-accounting-related settlement value; in 2009 the difference between the two kinds of settlements was 170%.  

Other notable findings in the 2010 study include:  

  • A shift in filings from east coast to west coast - The single largest number of filings in 2010 was recorded in the Ninth Circuit, ending the dominance of the east coast, and specifically the Second Circuit, which since 2005 has seen more filings annually than any other. In 2010, 30% of filings were in the Ninth Circuit compared to 24% in the Second Circuit.  
  • Accounting-related cases as a percentage of total cases fell from 37% in 2009 to 35% in 2010, representing the lowest level in 15 years (since the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA)). The percentage of accounting-related cases relative to total filings measured each year has been less than 50% for only 4 of the last 15 years analyzed.  
  • The majority of 2010 federal filings continued to name directors and officers. Notably, almost all of the categories of directors and officers named increased from last year.  
  • In 2010, 14% of filings were directed at Fortune 500 companies, compared to 20% of filings in 2009. The percentage of 2010 filings approximated pre-financial-crisis levels. 

More information about PwC's Securities Litigation practice and a full copy of the annual study are at http://www.10b5.com.

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