Subprime-Related Lawsuits Doubling Last Year’s Pace
Securities class-action lawsuits sparked by the subprime crisis and credit crunch continue to rise and are on a pace to more than double the total for 2007. However, securities lawsuits in other areas are down from last year. According to latest data from Cornerstone Securities and the Stanford Law School Securities Class Action Clearinghouse.
About half of the filings so far in 2008 were driven by the subprime mortgage/credit crunch, with 58 filings in the first half of the year containing related allegations, the Mid-Year Assessment shows. This compares with 30 in the second half of 2007 and 9 in the same period of last year for a total of 39 in all of 2007. (In an earlier report, NERA Economic Consulting counted 56 year-to-date subprime-related lawsuits through April 21.)
If the filing rate for the first half of the year continues in the second, 220 securities class actions will be filed in 2008, up from 173 in 2007 and 115 in 2006.
The first half of this year also saw a surge in suits related to auction rate securities, according to the Assessment.
The Financial sector had the most securities class action filings for the third straight six-month period, with 63 filings in the first half of 2008—up from 30 in the second half of 2007 and 19 in the first half of 2007. This sector also registered more filings than all other sectors combined. The subprime/credit crunch fallout drove this spike, with almost all the Financial sector filings involving related allegations. In 2007 and the first half of 2008, 87 of the 97 subprime/credit crunch-related filings were in the Financial sector.
John Gould, Vice President at Cornerstone Research and contributor to the report, said, “We have also seen a sharp increase in defendant firms’ average market capitalization losses associated with filings. The median loss in the first half of 2008 was $243 million, more than twice the historical average. Not since the period of heightened filing activity in 2000–02 have we seen market capitalization losses of this size among defendant firms.”
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