Securities fraud class actions drop 19% in 2012
By Barry B. Burr | January 23, 2013 3:19 pm
Federal securities fraud class-action lawsuits fell 19% to 152 in 2012 from 188 in the previous year, according to a report by Cornerstone Research and Stanford Law School Securities Class Action Clearinghouse released Wednesday.
Some 3.4% of S&P 500 companies were among the defendants in the suits in 2012, accounting for 4.9% of the S&P 500's market capitalization. By contrast, in 2011, 3.2% S&P 500 companies, accounting for 5.1% of the index's market cap, were defendants in the suits, according to the report, “Securities Class Action Filings: 2012 Year in Review.”
Overall, the decrease in class-action filings was due in part to the end of credit crisis-related class actions; in 2012, none was filed, compared with three in 2011. By contrast, in 2007, when the first credit crisis class-action suits were filed, there were 39. At their peak, in 2008, 100 credit crisis-related suits were filed.
In addition, the decline in overall class-action filings in 2012 was due in part to a drop in cases related to merger-and-acquisition transactions, falling to 13 in 2012 from 43 in 2011.
Value of overall alleged market losses fell as well.
For 2012, a total of $405 billion of defendant firms' market value was lost from the trading day with the highest market capitalization during the class-action period to the trading day immediately following the end of the class-action period, the report shows. That's down from $511 billion in 2011.
By another measure, the report shows a total $98 billion loss in the defendant firms' market value from the trading day immediately preceding the end of the class-action period and the trading day immediately following it. That's down from $110 billion in 2011.
“I wouldn't say companies are more honest or less honest,” John Gould, senior vice president of Cornerstone Research, said in an interview about the declining trend in class-action suits. “There hasn't been any (new) major wave of litigation like the credit crisis .. . or, a number of years ago, IPO cases related to Internet and technology stocks.”
Among the class-action filings in 2012, Mr. Gould said, “Some of the stocks with bigger price drops ... were old-school companies like General Motors … Hewlett-Packard and J.P. Morgan Chase. But also new tech (and Internet) companies like Groupon and Facebook and Netflix.”