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Securities class action lawsuit frequency and severity continue to remain well below average, though first-half 2007 figures indicate the number and severity of claims for the year might increase from last year's totals, according to a report.
For the first six months of 2007, 59 securities class action lawsuits were filed, a slight decrease from the 63 lawsuits that were filed during the first half of 2006, according to the Stanford Law School Securities Class Action Clearinghouse of Palo Alto, Calif., in cooperation with Cornerstone Research of Boston.
The first half of 2007 marked the fourth consecutive six-month period of below-average frequency, the report found.
On an annualized basis, however, the number of filings in 2007 would total 124, vs. 116 last year, the report said. The 2007 annualized estimate is based on a June 22 cutoff for evaluating claims, a Cornerstone spokeswoman said.
But even considering the higher estimated 2007 claim frequency, the total would be the second-lowest since 1996, when the Private Securities Litigation Reform Act--designed in part to prevent frivolous securities claims--went into effect, according to the report. From midyear 1996 through midyear 2005, when claim frequency began dropping significantly, 202 securities class actions were filed annually on average, the report noted.
Claim severity, meanwhile, rose during the first half of 2007 compared with the same period last year, according to the report. For example, on a disclosure-dollar loss basis--or market capitalization losses that investors sustained the day after a company announced it had misrepresented its financial reports--first-half 2007 losses totaled $33 million. That figure was 50% greater than the $22 million loss reported during the first half of 2006, but it was only slightly more than the $31 million loss calculated for the second half of 2006, the report noted.
On an annualized basis, the 2007 disclosure-dollar loss would total $69 billion, which would be $2 billion greater than the annual average for the 1996-2005 period, the report noted. But the 2007 annualized figure would be far lower than the $197 million to $242 million annual losses associated with claims from 2000 through 2002, when frequency and severity peaked after passage of the PSLRA, the report said.