Securities fraud litigation seems unlikely to reach the volume of it's late 1990s boom period, but as long as companies have bad quarters and execs keep covering it up (or just appear to do so), no doubt, the cases will continue. This Boston Business Journal article offers reflection and speculation from several industry heavy hitters, all of whom seem to be of the opinion that '05's relative slump won't necessarily be repeated in '06:

Via the Boston Business Journal:

Shareholder suits down, but a new wave may be near

Sheri Qualters
Journal Staff
Boston Business Journal
Legal notebook

The number of securities class action lawsuits filed in the United States fell off last year, but experts say it's not time for companies to relax yet because a rising number of corporate restatements could harbinger a new wave of such suits. Securities fraud class actions suits slid 17 percent last year to 176 filings from 213 in 2004, according to the Stanford Law School Securities Class Action Clearinghouse. The clearinghouse also says 2005 filings are off 10 percent from the average of 195 suits between 1996 and 2004.

Investor losses also dropped sharply last year. According to the clearinghouse's disclosure, dollar loss index -- which measures the decline in the market capitalization of a company being sued during the period covered by the class action suit -- dropped 33 percent to $99 billion in 2005 from $147 billion in 2004. Losses were also down roughly 50 percent from 2001 and 2002 numbers. Although Stanford's findings are dramatic, observers in the legal community say filings have always seesawed from year to year.

The one-year decline is consistent with the alternating pattern, said Jordan Hershman, a partner in the securities and corporate governance litigation group at Bingham McCutchen LLP. What's more, Hershman said, case filings aren't driven by the amount of actual fraud. But the U.S. stock market's relative stability last year, which registered its lowest volatility since 1996, could be a factor, he said.

"Plaintiffs' class action lawyers continue to control this type of litigation, and they are driven predominantly by their own greed," Hershman said. Speaking from the other side, Glen DeValerio of Berman DeValerio Pease Tabacco Burt & Pucillo said it's too soon to tell if the one-year drop is a trend. The Boston-based firm, which represents plaintiffs in class action cases nationwide, is still plenty busy, DeValerio said.

"You could have significant frauds going on right now that have been going on over the last year (and) haven't been revealed," DeValerio said. "Enron went on for several years until the truth came out." Even one of the deans of the securities class action plaintiffs bar, William Lerach of Lerach Coughlin Stoia Geller Rudman Robbins LLP in San Diego, has been widely quoted as saying it's difficult to draw conclusions from the recent data. "The ocean comes in, the ocean goes out," said Lerach in published reports. "It doesn't feel any different to me.''

But rising earnings restatements foreshadow future lawsuits, said Bruce Carton, vice president of securities class action services at Institutional Shareholder Services Inc. of Rockville, Md. "The fact that you're getting a flurry of restatement of 2005, if it hasn't already led to lawsuits, probably will in the future," Carton said.

Investment research and advisory firm Glass Lewis & Co. LLC of San Francisco reportedly counted 1,031 restatements through the end of October 2005, compared with 650 in 2004 and 270 in 2001. Many recent restatements can be traced back to the requirements of the Sarbanes-Oxley Act of 2002, but following the new rules doesn't make companies immune to lawsuits, he said. "SOX fuels restatements, which fuels lawsuits," Carton said...

More in the full article, which can be found here. Bruce Carton also maintains a fine blog that if you are reading this post you are probably already well aware of. but just in case you're not, you can find his Securities Litigation Watch here.

-- MDT

Labels: Enron, Standford Securities Class Action Clearing House