Valuations from securities and limited partnership litigations may be waning

As many predicted, a wave of securities litigation followed the credit market crash: In 2009, 7,137 claims were filed with FINRA, a 43% increase compared with 2008 (4,982 cases filed). Most of the disputes asserted breaches of fiduciary duty, misrepresentation/fraud, negligence, and breach of contract related to common stock and mutual funds. However, cases concerning limited partnerships interests showed a notable spike: 73 filings in 2009 compared to only 33, 19, and 21 in the respective prior years. Derivative and auction rate securities (which have only been tracked since 2008) were also featured in a substantial number of filings.

After the wave, there now appears to be a “winding down” of securities litigation, according to Michele Rose, a partner with Latham & Watkins LLP (D.C.), who spoke at the ABA Business Law Section’s spring meeting in Denver. The latest FINRA statistics show only 1,483 new cases filed through March 2010, a 14% decrease from the same period last year. Interestingly, while the percentage of cases settled has remained fairly stable, the value of the settlements decreased over the past year by 20%. “This could be the result of better lawyering,” Rose wryly observed, or it could be due to the economy.

Even at their peak in 2009, FINRA securities filings never reached the all-time highs of 2002 – 2005, following the collapse of the technology industry. “The [current] market crash did not focus on one particular sector or product—it was deep and wide,” explained John Kincade (Winstead PC, Dallas), who also spoke at the ABA meeting. Kincade believes cases concerning limited partnerships—hedge funds, brokerage firms, etc.—will see a comparative rise, especially in the energy arena. On average, 40% of all cases that go to final hearing will render an award on behalf of the claimant, a fairly consistent statistic that will keep securities lawyers and their financial experts busy.