A wave of litigation against firms in the financial services sector dominated federal securities class action activity last year, reveals Securities Class Action Filings—2008: A Year in Review, an annual report prepared by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research. A total of 210 federal securities class actions were filed in 2008, a 19% increase over the 176 such class actions in 2007, and a 9% increase over the average of 192 such class actions between 1997 and 2007.
Fair value accounting appears to be having a significant impact in a number of areas—among them accounting-related litigation and securities class actions. As Antonio Yanez, Jr., a litigation partner with Willkie Farr & Gallagher and a member of the national law firm’s Securities Litigation & Enforcement practice group, explains in his recent Business Valuation Update™ article, although the impact probably cannot be fully appreciated at this point, there are three key implications for litigation that stand out:
- Fair value accounting appears to be contributing to an increase in accounting-related litigation and securities class actions in particular.
- Fair value accounting is highly judgment-driven.
- Fair value accounting brings to a head the conflict between the evolution of financial reporting, on the one hand, and our system of litigation on the other.
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