John Gould, Ph.D. Vice President Cornerstone Research

See also: 2003 Securities Class Action Settlements 2004 Securities Class Action Case Filings 2004 Securities Class Action Settlements 2005 Securities Class Action Case Filings Post-Reform Act Securities Settlements:    2005 Review and Analysis 2006 Securities Class Action Case Filings 2006 Mid-Year Assessment Securities Class 2006 Securities Class Action Settlements Study 2007 Securities Class Action Case Filings Securities Class Action Settlements:    2007 Review and Analysis 2007 Mid-Year Assessment:    Securities Class Action Case Filings 2008 Securities Class Action Case Filings

Joseph A. Grundfest, Esq. Professor, Law and Business Stanford Law School

During the first half of 2008 securities class action filings continued the rebound that started in the second half of 2007, following two years of lower activity. According to a just-released report by Cornerstone Research in cooperation with Stanford Law School’s Securities Class Action Clearinghouse, there were 110 filings between January 1 and June 30, 2008, suggesting as many as 220 filings by the end of the year.

The recent high level of filings coincided with a marked increase in stock market volatility. Filings jumped from 119 in the twelve months ending June 2007 to 217 over the next twelve months, and stock market volatility doubled over the same period. This level of litigation activity exceeded the annual average for the eleven years between January 1997 and December 2007. About half of the filings in the first half of 2008 were driven by the subprime mortgage/credit crunch, with 58 filings containing related allegations. Of these, 17 involved auction rate securities.

Professor Joseph Grundfest, co-Director of the Rock Center on Corporate Governance and former Commissioner of the Securities and Exchange Commission, noted that, “We continue to witness the dramatic effects of the subprime market meltdown, with half of the filings so far this year linked to the subprime/credit crunch disaster.”

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.”

Additional findings include:

   Financial Sector Had the Most Filings. 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.

   Market Capitalization Losses Increased. Maximum Dollar Losses ¹ (MDL) rose from $504 billion in the second half 2007 to $587 billion in the first half of 2008 — the highest level since the second half of 2002. Annualized, this figure would represent a 74 percent increase over 2007 and a 69 percent rise over the average for the eleven years ending December 2007. Disclosure Dollar Losses ² (DDL) also remained high in the first half of 2008, at $106 billion. Annualized, that would be 40 percent more than in 2007 and 65 percent more than the average for the eleven years ending December 2007.

Incidences of “mega” MDL filings (cases associated with MDL of $10 billion or more) also continued at high levels, with 17 in the first half of 2008 compared with 16 in all of 2007. In addition, there were 7 mega DDL filings (cases associated with DDL of $5 billion or more) in the first half of 2008, compared with 9 in 2007 and just one in 2006.

¹ Maximum Dollar Loss (MDL) is the dollar value decrease in the defendant firm’s market capitalization from the trading day on which the defendant firm’s market capitalization reached its maximum during the class period to the trading day immediately following the end of the class period.

² Disclosure Dollar Loss (DDL) is the decrease in the market capitalization of the defendant firm from the trading day immediately preceding the end of the class period to the trading day immediately following the end of the class period..

Professor Grundfest and Dr. Gould are available to speak to the media about the report. The full text of the 2008 mid-year report can be found 2008 Mid-Year Assessment: Securities Class Action Case Filings

Stanford Law School's Securities Class Action Clearinghouse is an authoritative source of data and analysis regarding the financial and economic characteristics of federal securities fraud class action litigation.

Cornerstone Research is a national consulting firm providing financial and economic analysis in civil litigation and regulatory proceedings, and concentrates in securities, antitrust, intellectual property, energy, accounting, and financial institutions litigation. Cornerstone Research cosponsors the Stanford Law School Securities Class Action Clearinghouse and maintains offices in Boston, Los Angeles, Menlo Park, New York, San Francisco, and Washington.

John Gould, Ph.D. Vice President — Boston Office Cornerstone Research 360 Newbury Street Boston, MA 02115 617.927.1500 Email: John Gould, Ph.D. jgould@cornerstone.com URL: http://www.cornerstone.com

Joseph A. Grundfest, Esq. William A. Franke Professor of Law and Economics Stanford Law School Crown Quadrangle 559 Nathan Abbott Way Stanford, CA 94305-8610 650.723.2465 Email: Joseph A. Grundfest, Esq.grundfest@stanford.edu URL: http://lawschool.stanford.edu/

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URL: http://www.businessforum.com/Cornerstone_08A.html
Revised: July 29, 2008 TAF

© Copyright 2008 John Gould and Joseph A. Grundfest. / Cornerstone Research, All Rights Reserved