NEW YORK, April 1, 2009 (GLOBE NEWSWIRE) -- Companies will face increasing scrutiny in 2009 as the global financial crisis continues to transform the financial services industry and necessitates a reengineering of future regulation according to the annual PricewaterhouseCoopers Securities Litigation study released today. Fuelled by the financial crisis, U.S. federal securities class actions continued to climb, and jumped to 210 in 2008, an increase from 163 case filings in 2007. This represents a 29 percent increase over last year and an increase of approximately 15 percent over the average number of filings (182) since the enactment of the Private Securities Litigation Reform Act (PSLRA) in 1995.
"The unprecedented financial events of 2008 eclipsed all other issues during the year. What started as the subprime crisis quickly turned into the credit crisis, which soon thereafter became the global financial crisis," said Grace Lamont, principal and U.S. securities litigation practice leader for PricewaterhouseCoopers. "Not surprisingly, the majority of filings during 2008 were related to the financial crisis, with investment banks most often named as the defendants."
The total value of settlements in federal securities class actions amounted to $3.6 billion in 2008 - a decrease of 45 percent from 2007, primarily driven by the mega settlement by Tyco in 2007 of $3.2 billion. Excluding the Tyco settlement, the total settlement value increased by approximately 9 percent over 2007 - from $3.3 billion in 2007 to $3.6 billion in 2008.
Also in 2008, the number of accounting-related cases as a percentage of total filings continued to decline for yet another year, falling from 52 percent in 2007 to 40 percent - the lowest since the PSLRA was enacted. Notably, though, the highest nine settlements of the year were exclusively accounting-related settlements.
Ponzi schemes rose to prominence as 2008 came to a close. According to the Securities Exchange Commission (SEC), there were 70 Ponzi cases between 2007 and 2008, averaging three a month. The Commodity Futures Trading Commission (CFTC) saw the number of related leads to Ponzi schemes more than double in the past year, resulting in the prosecution of 15 Ponzi schemes.
Although new accounting-related SEC litigation releases issued in connection with the Foreign Corrupt Practices Act (FCPA) dropped, the SEC and the U.S. Department of Justice (DOJ) pledged to continue their commitment to pursuing FCPA violations going forward.
Within the past year, the number of class actions filed against foreign companies listed on U.S. stock exchanges reached an all time high since the passage of the PSLRA. In 2008 there were 36 in total, compared to 27 in 2007 - an increase of 33 percent.
Other key findings in the 2008 study include:
* High-tech is no longer the top target - The increase in filings against the financial services industry group began in 2007 with the dawning of the financial crisis, and by year-end 2007, 21 percent of all filings involved financial services companies compared to 6 percent in 2006. In 2008, 48 percent of cases, the largest against one specific group since the enactment of the PSLRA, were in this financial services industry. * Actions against Fortune 500 increase - The percentage of federal securities class action lawsuits filed against Fortune 500 companies during 2008 increased by 6 percent from 2007. During 2008, 18 percent of filings involved a Fortune 500 company compared to 12 percent in 2007. * The Second and Ninth Circuits dominate - Filing activity was more frequent in the Second and Ninth Circuits than ever before. Second Circuit filings accounted for most filings, jumping ten percentage points from 34 percent of total filings in 2007 to 44 percent in 2008. This increase was driven by the financial-crisis-related filings. Additionally, filing in the First Circuit had a six percent increase. * Total settlements fall - The number of settlements recorded during 2008 declined to the lowest number recorded in any year this decade. A total of 95 settlements were made in 2008. * Institutions tighten the reins - The largest settlements in 2008 all had a large institutional investor as a lead plaintiff, including all six of the settlements over $100 million dollars.
"Unlike the losses incurred by the shareholders of companies involved in corporate and accounting scandals in 2002 - which resulted in the regulatory response of Sarbanes-Oxley - the crisis affecting 2008 is a global issue which has negatively impacted the share price of almost every listed entity around the world," said Patricia Etzold, partner and author of the section of the study dealing with foreign companies listed on the U.S. exchanges.
According to the study, three areas where companies will want to remain especially vigilant over the coming years are institutional-plaintiff activity (particularly activity related to public and union pension funds), internal controls accounting-related allegations, and FCPA enforcement.
"As the U.S. and countries across the world attempt to repair the damage that the global financial crisis has wreaked on their economies and financial markets, companies in all industries should take heed that now more than ever before, they are under the microscope," stated Lamont. "Looking ahead to 2009 and beyond, the implications of 2008 activity are clear: those that vigilantly prepare for potential crises and litigation will be better positioned to travel the bumpy road."
For the full PricewaterhouseCoopers Securities Litigation Study please visit http://www.10b5.com.
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