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Securities lawsuits increase in third quarter: Advisen


Companies faced more securities lawsuits in the third quarter after a relatively light second quarter as litigation targeted more nonfinancial firms, Advisen Ltd. said Wednesday.

Some 169 securities lawsuits were filed during the third quarter, up 11% over the second quarter—when such litigation declined temporarily—but below the 249 suits filed in the first quarter of 2009, according to Advisen’s quarterly report on securities filings.

Third-quarter action targeted more firms outside the financial services sector and securities lawsuits will continue to spread to other sectors, the report said.

“As bankruptcies rise through the economy, hitting all sectors, and securities suits are filed as a consequence, suits filed will become more dispersed and will broadly affect all sectors,” the report said.

The Advisen report counts not only security class action suits, but also securities suits that are not class actions, actions filed by regulatory or law enforcement agencies, and actions filed outside the United States.

The number of securities class action suits rose in the third quarter compared with the first two quarters of the year. Traditionally, class actions have been the most frequent kind of securities suit, but that has not been the case this year; in the third quarter, they represented one-third of all securities suits. Fraud cases—a category Advisen uses to refer mostly to enforcement actions by the Securities and Exchange Commission, state attorneys general and other regulators—represented 41% of all filings, the report found.

Cases related to the credit crisis and to Bernard Madoff’s fraud scheme have dropped off significantly and appear to have reached their zenith in the first quarter of 2009, Advisen said. Madoff-related suits fell from 54 in the first quarter to 17 in the second quarter to six in the third quarter, and credit crisis-based suits fell from 46 in the first quarter to nine in the third quarter, the report said.

Financial institutions have borne the brunt of securities litigation since 2008, but their share has been declining since the first quarter of 2009, the report said. Suits against financial services firms represented one-third of the securities suits in the third quarter, while other sectors, such as health care and information technology, have seen an increase in lawsuits.

Historically, securities cases have tapped directors and officers liability insurance. But the Advisen report said some of the litigation related to Ponzi schemes and the credit crisis deal with professional judgment and fiduciary duties, which could trigger errors and omissions and fiduciary liability insurance policies.