Federal securities class-action lawsuit activity continued to decrease in the first six months of 2010 to the lowest semiannual level since the first half of 2007, according to a new report.

The report, by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research, found that a total of 71 federal securities class actions were filed in the first half of 2010, a 15.5 percent decline from the 84 filings in each half of 2009. The decline in filings is associated with a decrease in credit-crisis-related litigation, which accounted for only eight filings in the first half of 2010, compared with 37 filings in the first half of 2009 and 16 filings in the second half of 2009.

In addition, the median lag time between the end of the class periods and the filing dates decreased to 25 days, slightly below the historic median of 28 days, and well below the spike in median lag time of 112 days observed during the second half of 2009.

“The securities fraud litigation wave stimulated by the credit crisis now appears to be history,” said Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse. “We have an inventory of cases waiting to be dismissed, settled, or tried, but to borrow a phrase from the current Gulf oil spill crisis, it seems that this flow has largely been capped.”

The financial sector continues to be a focus of plaintiffs’ attention. Financial companies were defendants in 29.6 percent of the filings in the first half of 2010. Only 5.1 percent of the S&P 500 companies in the financials sector were named as defendants in federal securities class actions in the first half of 2010, representing 17.5 percent of that sector’s market capitalization.

In 2009, 11.9 percent of the S&P 500 Financials companies were targeted during the full year, representing 38.2 percent of the market capitalization in that sector. In terms of the percentage of constituents sued in each sector, S&P 500 companies in the Health Care and Energy sectors were most frequently named. Approximately 7.7 percent of the S&P 500 companies in each of the two sectors were targeted during the first half of 2010.

Disclosure dollar losses totaled $53 billion, a 51.4 percent increase from the second half of 2009, but still well below the semiannual average of $67 billion for the 13 years ending December 2009.1 There were four mega DDL filings—filings with a DDL of $5 billion or more—that accounted for $35.8 billion and represented 67.1 percent of the DDL Index in the first half of 2010. Of the four mega DDL filings, one was related to the credit crisis. In the full year of 2009, three mega filings represented 49.3 percent of the DDL Index, including one filing related to the credit crisis. Mega filings have represented 56.7 percent of the DDL Index between 1997 and 2009.

Maximum dollar losses totaled $345 billion in the first six months of 2010, a 73.4 percent increase from the second half of 2009 and only 0.9 percent below the semiannual average for the 13 years ending December 2009. In the first half of 2010, there were 10 mega MDL filings—filings with an MDL of $10 billion or more—that accounted for $304.6 billion and represented 88.4 percent of the MDL Index in the period. Two of the mega filings were related to the credit crisis, and five mega filings exceeded $25 billion.
In the full year of 2009, 11 mega filings represented 72.6 percent of the MDL Index. Six of the mega filings were related to the credit crisis, and six mega filings exceeded $25 billion.

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