Predicted litigation boom may focus more on audit firms

BVWireIssue #83-1
BVWireIssue #83-1
August 5, 2009

“Federal class action securities filings began to surge in 2007 with the subprime lending collapse,” begins a new report titled Recent Trends in Securities Class Litigation: A 2009 Mid-year Update, by NERA Economic Consulting.  “As the subprime lending meltdown grew into a full-blown credit crisis, the number of filings related to the credit crisis also grew, both in absolute number and as a fraction of all filings. In 2008, driven by this crisis, filings reached a peak of 259 cases, the highest level since 2002. In the first half of 2009, filings have come in at a similar rate, with 127 filed by June 30, on pace for over 250 for the full year.”

Predictably, in the post-Madoff world, 20% of the year-to-date filings contain Ponzi scheme allegations. Given the credit crisis, litigation has also focused on defendants in the finance sector. Nearly two-thirds (67%) of the 2009 filings name at least one financial institution defendant, compared to approximately 25% of the cases filed four years ago.  “The percentage of cases naming an accounting firm as a co-defendant also increased in the first half of 2009, rising to 17%, the highest percentage in the past five years,” according to NERA. Historically, settlements in securities cases have been higher when the defendant admitted accounting irregularities.

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