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HEADLINE NEWS:
Economy Stirs More Securities Lawsuits, But Smaller Payoffs
Staff Writer
Miami Daily Business Review. April 7, 2008
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EXCERPT: With the economy swooning, South Florida attorneys specializing in securities litigation say they expect more lawsuits but less spectacular settlements. The main reason is the U.S. Supreme Court has made it increasingly harder to win securities lawsuits, especially class actions, under a slew of decisions in the last few years. 'There are huge impediments to winning these cases now. If the cases are harder to win, they tend to settle for less money,' said Scott Dimond, an attorney with Dimond Kaplan & Rothstein in Miami. Harley Tropin, a founding partner of Kozyak Tropin & Throckmorton, said securities fraud claims have definitely gotten more challenging. While the Supreme Court's decisions have focused on class-action litigation, he said it's only a matter of time before restrictions impact businesses and people who want to bring suit. 'You need to be more selective in what cases you bring,' Tropin said. 'I would say there are going to be fewer avenues of recovery for individual investors.' Congress passed the Private Securities Litigation Reform Act of 1995 aimed at curtailing frivolous lawsuits, particularly those tied to falling stock prices. Cases challenging that law have found their way to the nation's high court, and the results were kind to neither investors nor plaintiff attorneys. The court dealt a blow in January to Enron investors looking to recover money from an accounting fraud that wiped out thousands of jobs, $60 billion in market value and more than $2 billion in pension funds. The court refused to review the class action after an appeals court ruled against investors. It was just the latest decision curtailing the ability of money-losing investors to sue. A recent study by Stanford Law School and Cornerstone Research, a consulting firm that provides economic testimony to attorneys, has found the value of settlements is on the decline. The study found that in 2007 the number of securities class action settlements was 111, up 21 percent from the year before. At the same time, the total value of settlements plummeted to $7 billion in 2007 from an all-time high of $17.2 billion in 2006. Overall the number of settlements worth more than $100 million declined to nine in 2007 from 14 in 2006. Last year's figures included the $3.2 billion Tyco International settlement, the third largest in history. Tyco overstated its income from 1999 to 2002 by $5.8 billion. Company CEO Dennis Kozlowski and CFO Mark Swartz are serving 25-year prison sentences after looting more than $600 million from the conglomerate. With Tyco, Enron and other corporate failures clearing out of the courts, the era of the big fraud class-action securities cases appears to be over. 'It seems clear that the aggregate dollar value of settlements over the next two or three years is likely to decline significantly because the inventory of large cases in the pipeline just isn't there,' said Stanford Law professor Joseph Grundfest, a former commissioner of the Securities and Exchange Commission. |
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