Is the Death of the Securities Class Action Greatly Exaggerated?

[WSJ_law_blog]

It’s been a source of some mystery over the last several months: where have all the securities class-actions gone? The drop in filings has caused folks to wonder whether the heyday of the 10b-5 suit is over or whether the blip was simply temporary.

We’re starting to see signs now, however, like a hillside of brushland years after a fire, that signs of life are returning. According to a recent post by Kevin LaCroix over at the D&O Diary blog, “securities class action lawsuit filings during the third quarter were closer to historical norms . . . .”

According to LaCroix’s count, there were 49 new securities class action lawsuits during the third quarter, which brings the year to date total of new securities class action lawsuit filings to 143. Writes LaCroix: “The annualized equivalent of the filings for the first nine months of 2009 projects to a twelve-month filing rate of 191, which is slightly below but still well within range of the average of 197.7 annual filings during the 13-year period between 1996 and 2008.”

So the numbers may be back up, but upon closer inspection at the breakdown, LaCroix still sees irregularity, specifically in the fact that the number of monthly filings has varied significantly in recent months.

There may be any number of reasons for this fluctuation, but I continue to believe that the fluctuations are largely due to the fact that the plaintiffs’ lawyers are jammed up with the mass of lawsuits they filed over the last three years. . . . These filings may suggest that the plaintiffs’ lawyers have been so preoccupied with the other cases and with the Madoff lawsuits that they developed a backlog, which they are now getting around to working off.

So what accounted for the drop and subsequent bounceback? In LaCroix’ opinion, the dip was, perhaps ironically, partly due to the global meltdown, which really affected all sectors and most companies, making it hard to tie any given stock drop to fraud or other impropriety. Writes LaCroix:

What started several years ago with the subprime meltdown has evolved into a global financial crisis, affecting all companies across the entire economy. As a result of these developments, it has become increasingly difficult to define precisely what constitutes a subprime and credit crisis-related lawsuit. It may not be so much that the subprime and credit crisis litigation wave has crested as it is that the wave has merged into a larger tidal movement and is no longer its own separately identifiable phenomenon.

In addition to plaintiffs’ lawyers “working off” the backlog, LaCroix surmises that the recent bump has a bit to do with “new cases involving unusual targets,” like ETF Funds, closed-end investment funds and mortgage trusts.