The
number of securities class-action such suits in
2005 dropped 17% to 176 last year, the lowest total
since 1997, according to an annual report by Boston-based
Cornerstone Research and Stanford Law School. The
highest number in recent years, 239 suits, came
in 1998. The stock price volatility that came with
the tech boom of the late 1990s contributed to
big claims by investors who alleged mismanagement,
the study's authors said. Tighter corporate governance
laws and a quieter market also might have played
a role in last year's drop in litigation, they
said.
The
findings are good news for American businesses and
investors, said Stanford's Joseph Grundfest. But
he cautioned that "we won't know for another
two or three years" whether the decline will
become a trend. More significant than the drop in
the number of suits was an even steeper dive in total
alleged losses, Cornerstone economist John Gould
said.
Those
losses -- defined as the combined decline in market
capitalization suffered by defendant firms the day
after restating earnings or taking another corrective
action that led to a suit -- fell by a third in just
one year, from $147 billion in 2004 to $99 billion
in 2005. This may reflect more rigorous corporate
accounting practices, some observers said.
San
Francisco class-action lawyer Robert
Lieff said fewer class actions were being filed
in part because some institutional plaintiffs concluded
that they would fare better against corporations
by going it alone, not diluting their claims with
lesser ones filed by smaller investors. In some cases,
Lieff said, investment funds represented by his firm
won full restitution while class members who sued
the same corporation recovered only 10% of their
alleged losses. |
