The post-credit crisis era of securities litigation continued to leave its mark in the second quarter of 2012: down from the frantic highs, but elevated compared to pre-credit crisis levels. The somewhat improving economy, albeit shaky, over the past year helped, but a falloff in M&A activities over the past year was the primary driver in the drop in overall new securities suits. Fewer M&As resulted in a drop in merger-objection suits. Ironically, the central concern that could thwart the economic recovery, the Eurozone sovereign-debt crisis, is also the leading reason for the falloff in M&A activities. Easing of regulatory actions also contributed to the result of fewer suits in the quarter.

Register for this free webinar via: https://www1.gotomeeting.com/register/834883593

The post-credit crisis era of securities litigation continued to leave its mark in the second quarter of 2012: down from the frantic highs, but elevated compared to pre-credit crisis levels. The somewhat improving economy, albeit shaky, over the past year helped, but a falloff in M&A activities over the past year was the primary driver in the drop in overall new securities suits. Fewer M&As resulted in a drop in merger-objection suits. Ironically, the central concern that could thwart the economic recovery, the Eurozone sovereign-debt crisis, is also the leading reason for the falloff in M&A activities. Easing of regulatory actions also contributed to the result of fewer suits in the quarter.

The number of new securities suit filings declined to 412 suits, down 8 percent from the previous quarter, and down 7 percent from a year earlier. Of these suits, 331 unique companies had at least one suit filed against them, down 8 percent from the previous quarter, but flat with a year earlier. The annualized rate of 1,648 suits for Q2 2012 was 15 percent below the record-setting 2011, and likewise the annualized rate of 1,718 in the first half of 2012 was down 11 percent from 2011. The number of unique companies with at least one suit for Q2 2012 was 9 percent the average quarter in 2011.

Securities fraud cases, mostly regulatory actions, were once again the leading type of new securities-suit filing in Q2 2012; but down from the previous quarter and the quarterly average of 2011. Despite this falloff, securities fraud cases remained at a higher rate than all years prior to 2011. Securities class action suits were up from the previous quarter, and flat with the 2011 average. Derivative actions have been brought back into the limelight over the past year. Breach of fiduciary duties suits, driven by so-called merger objection suits, became litigators' bread-and-butter in recent years, and the level remained higher than other types of private litigation in Q2 2012. The level, however, dropped substantially since mid-2011 and is now on par with the level set in 2009. The drop in new merger-objection-suit filings in 2012 was likely due in part to the falloff in M&A activities.

Globalization has had a substantial impact on securities litigation over the past years, and this trend continued in the first half of 2012, with filings against non-U.S. companies reaching 15 percent. Although the total number of suits filed against non-U.S. companies fell off slightly in the first half compared to 2011, considering that the total number of suits dropped, the percentage of non-U.S.-company suits remained at an elevated level, as was the case in 2011. The second quarter saw the percentage fall to 13 percent, but the percentage of non-U.S. suits have been on a steady upward march from 10 percent in 2009. A major cause of this growth in suits filed against non-U.S. companies was the burst in suits filed against Chinese companies, which represented nearly a quarter of all such new suits for the second quarter.

Sponsored by