On April 1, 2009, PricewaterhouseCoopers issued this year’s version of its annual study of securities class action litigation (here). The PwC report differs in certain particulars from previously released studies of the 2008 securities lawsuit filings, but the overall findings are directionally consistent with the prior reports. The PwC report also adds some interesting observations of its own.


My own analysis of the 2008 securities lawsuit filings can be found here. Cornerstone’s previously released study of 2008 filings can be found here and Cornerstone’s study of the 2008 securities lawsuit settlements can be found here. NERA’s 2008 study can be found here and Advisen’s can be found here.


The PwC study found, consistently with the prior reports, that as a result of the financial crisis, the number of securities class action lawsuits rose for the second year in a row in 2008. The PwC report tallied 210 securities lawsuits in 2008, a number that is notably below the numbers reported by other studies. The 2008 total represents a 29 percent increase over 2007. The report found that the filings were steady throughout the year, with a slight uptick in the fourth quarter.


The report found that the majority of the 2008 filings were related to the financial crisis. Indeed, the report noted that "for the first time since the PSLRA, in 2008 the plaintiffs’ bar filed more federal securities lawsuits against the financial services industry group (banking, brokerage, financial services and insurance) than any other industry." By the same token, for the first time since the PSLRA’s passage, high tech companies were not the most frequently targeted.


The number of filings against companies in the pharmaceutical industry remained consistent with 2007, with 21 lawsuits in the sector in both years. My own analysis of the 2008 securities filings in the life sciences sector can be found here.


Filings against companies in the Fortune 500 were up in 2008, with 37 filings during the year, or 18% of all cases filed. The average annual percentage of filings against Fortune 500 companies since the PSLRA’s enactment is 13%. The majority (65%) of the Fortune 500 companies sued in 2008 were in the financial sector.


The report notes that the profile of financial companies sued in 2008 changed from those named as defendants in 2008. The focus changed from loan originators in 2007 to entities involved in loan securitization in 2008. (I might add parenthetically that the loan securitizers remain a target in 2009.) In 2008, the auction rate securities lawsuits were a significant part (38%) of the suits filed against entities involved in loan securitization.


According to the PwC report, securities lawsuits in the United States against foreign issuers "reached an all-time high in 2008, with 36 cases representing 17 percent of the total federal securities class actions filed." These filings against foreign issuers represent the highest percentage of the total cases in any year since the enactment of the PSLRA. 15 (or 42%) of the 36 cases filed against foreign issuers involved companies in the financial services industry, and 32 out of the 36 of the suits against foreign issuers were filed in the Second Circuit. The countries whose companies were sued most frequently were Canada, China and Switzerland.


The report notes that the number and aggregate dollar value of securities lawsuit settlements declined in 2008. However, if the $3.2 billion Tyco settlement is excluded from the 2007 numbers, the remaining total value of the 2007 settlements ($3.3 billion) is 9 percent less than the total value of the 2008 settlements ($3.6 billion).


The average 2008 settlement of $41 million represented a substantial increase from 2007’s average of $28.3 million, but the 2008 average was still well below the 2005 average of $67.6 million. The median 2008 settlement of $8 million was unchanged from 2007.


The report has an interesting statistic showing that the 2008 average for settlements greater than $1 million but less than $50 million was $11.2 million, which not only represents an increase over the equivalent 2007 average of $9.6 million, but also represents the highest such average since the PSLRA’s enactment.


The report also has extensive additional interesting analysis regarding the prevalence and type of accounting allegations, and their impact on settlement; the nature of SEC enforcement activity; and the increase in foreign regulatory activity.


The report concludes by noting that there are three areas in which "companies will want to remain especially vigilant," which are "institutional plaintiff activity (particularly activity relating to public and union pension funds), internal controls accounting-related allegations, and FCPA enforcement." The report ends with the observation that "securities litigation activity in 2009 is likely to reflect [the] new era of accountability and oversight, particularly if the regulatory environment is overhauled, as most think inevitable."


An interesting interview discussing the PwC report can be found here.


Special thanks to a loyal reader for providing me with a link to the PwC report.