As the latest of the year-end 2007 securities lawsuit reports (including my own, here), Cornerstone Research has released (here) its 2007 report on securities class action filings. Cornerstone’s January 3, 2008 press release describing the report can be found here. The numbers in the Cornerstone report differ from those in the previously released year-end report of NERA Economic Consulting (here), but the numbers are directionally consistent. The Cornerstone report does make some additional observations about the 2007 securities lawsuit filings, and also adds some interesting analysis.
1. Cornerstone reports that there were 166 securities class action lawsuit filings in 2007, which represents a 43% increase over the 116 filings in 2006. The 2007 yearly total is, however, 14 percent below the average for the ten-year period ending in December 2006.
2. Stock market volatility is important in explaining the number of filings. The increase in filings in the second half of 2007 coincided with an increase in volatility in the U.S. stock market from the historically low levels that prevailed in 2006 and the first half of 2007.
3. Securities lawsuit filings as a percentage of the total number of publicly traded companies increased in 2007. 2.19% of publicly traded companies were sued in securities lawsuits in 207, compared to only 1.57% in 2006, and by contrast to the 2.27% ten-year average from 1997-2006.
4. For cases filed in 2007, the drop in market capitalization both from the beginning to the end of the class period and from the class period high to the end of the class period increased, largely driven by several large case filings in the fourth quarter of 2007.
5. Of the 2,646 cases in Cornerstone’s database, 81 percent have been resolved. Of the resolved cases, 41 percent were dismissed and 59 percent settled. For the cases filed from 1996 to 2001, almost all of which have been resolved, the median time to resolution is 33 months. The median time to dismissal is 25 months, and the median time to settlement is 36 months. Cases with larger shareholder losses are likely to take longer to resolve.
6. The Finance sector had the largest amount of litigation activity, with 47 Finance cases in 2007, driven by the subprime crisis.
7. The top three Circuits in terms of the number of 2007 filings were the Second Circuit, with 58 filings; the Ninth Circuit, with 39 filings; and the Eleventh Circuit, with 18 filings.
8. Cornerstone counted 32 cases attributable to the subprime crisis (by contrast to my own count of 34 cases, here). The report notes that the subprime filings reflect a shift in emphasis from allegations related to traditional income statement line items to allegations related to balance sheet components.