Financial Firms Targeted As Hot Spots For Securities Class Action Litigation

Monday, February 2, 2009

Financial Firms Targeted As Hot Spots For Securities Class Action Litigation


Studies show the number of class actions jumped 19 percent in 2008, and that large financial firms are a litigation hot spot. Various researchers, however, are offering different opinions about what the latest counts may reveal about litigation trends for 2009. According to an annual report prepared by the Stanford Law School Securities Class Action Clearinghouse in California and Cornerstone Research in Boston, 103 of the 210 federal securities class actions filed in 2008 involved firms in the financial sector.


New to the report this year is a "Litigation Heat Map"--a graphic that portrays the intensity of litigation activity within each industry over time. The map shows that nearly one-third of all financial firms included in the S&P 500 Index were named as defendants in securities class actions filed in 2008. A related heat map reveals that financial firms named as defendants in 2008 represented more than half of the sector's total market capitalization--54.8 percent.


"This level of litigation intensity against a single industry is unprecedented since the passage of the 1995 Reform Act," Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse, said in a statement.


A review of the information on the maps suggests the last sector to feel the heat of litigation to a similar extent--with a high percentage of filings representing a high proportion of the sector's overall market cap--was the utilities sector in 2002 (with 34 percent of firms sued, representing 42 percent of the overall market cap). The report notes, however, that a small number of utilities included in the S&P index as well as allegations related to energy trades with Enron and other counterparties explain the figures.

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