The amount of class action securities lawsuits filed in US courts last year significantly increased in the past six months while there was a massive surge in litigation over merger disclosures, according to a recent study released by Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research.
The study, entitled Securities Class Action Filings – 2010 Year in Review, points out that between the months of July and December, there were roughly 104 federal securities class action that were filed in federal courts – a number that rose from 72 filed in the first part of the year.
As for the total number of lawsuits, there was an increase from 168 to 176 in 2009, however, last year’s filings were ranked below the annual average of 195 since 1997.
Moreover, another highlight of the study reveals that a large increase can be seen in lawsuits that were filed over alleged violations in disclosure relating to a merger, which jumped from seven in 2009 to 40 in 2010.
‘The sharp increase in federal litigation alleging disclosure violations in [merger and acquisitions] transactions suggests that plaintiff lawyers are scrambling for new business as traditional fraud cases seem to be on the decline,’ said Joseph Grundfest, director of the university’s Securities Class Action Clearinghouse.
Grundfest predicts that this trend will only continue as time progresses, but the reason behind this increase is due to a method used by plaintiff’s lawyers to control merger- related litigation filed in state courts.
On another note, the data suggest an upsurge in filings against Chinese companies. In 2010, Chinese issuers were named in 12 fillings, or 42.9 per cent of all filings against foreign issuers. Furthermore, lawsuits against companies relating to the credit crisis tapered 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.