Class-Action Conundrum

Class-Action Conundrum - 3.11.2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

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Class-Action Conundrum
Daniel Fisher

Forbes.com. March 11, 2009
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EXCERPT: Despite the epic volatility of the stock market last year, settlements in class-action securities cases actually fell more than 50% to the lowest levels since 2003. The payout in this lucrative corner of the litigation business was $3.1 billion last year, according to a report by Cornerstone Research and Stanford Law School's Securities Class Action Clearinghouse, down from $7.2 billion in 2007 and a record $16.3 billion in 2006 when the Enron scandal alone generated $7.2 billion in settlements. This year might not be a whole lot better, despite declines that erased trillions of dollars from stock-market values around the globe. First of all, there are fewer deep-pocketed financial companies to pay out damages as they did with Enron, WorldCom and other big collapses in the past. "A large part of the recent boom in litigation has been driven by lawsuits against financial institutions," says Joseph Grundfest, a Stanford Law professor and director of the Securities Class Action Clearinghouse. "But plaintiffs are running out of large financial institutions to sue." There's also the too-much-of-a-good-thing problem: While plunging stock prices are normally good for the class-action business, this time they may diminish the effectiveness of the argument that fraud was to blame. Under a 2005 U.S. Supreme Court decision known as Dura Pharmaceuticals, class-action lawyers must show that a stock fell specifically because of fraud. With even once-stalwart industries like utilities down 20% this year and financials down more than 40%, it becomes hard to show that an individual stock fell because management hid bad news from investors. The news is bad all over. "There's a lot of cases against companies in the financial sector," said Jill Fisch, a professor of securities law at the University of Pennsylvania Law School.

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