Dow Jones Newswires
Study: $52B In US Sec Lawsuit Settlements Paid Out Since '98
By Chad Bray
24 July 2008
NEW YORK (Dow Jones)--More than $51 billion has been paid out in settlements of securities class-action lawsuits in the U.S. in the past decade, a new study has found.
The U.S. Chamber Institute for Legal Reform, which has been critical of trial lawyers in the past, said the pressure on public companies to settle these types of actions is overwhelming and has created a costly tax on business in the U.S.
The study found companies have paid out $51.8 billion in settlements since 1998 and the value of those settlements continues to rise.
At the same time, the number of new securities class-action filings has increased nearly 60% in the first half of this year after rising 58% from 2006 to 2007, the study found.
"Driven by the multibillion-dollar plaintiffs' lawyer industry, the system exacts enormous costs on our economy while betraying the individual investors it is designed to assist," said Lisa A. Rickard, ILR's president, in a statement.
The study will be formerly released Thursday at a forum sponsored by ILR and the Manhattan Institute's Center for Legal Policy, which also has been outspoken about the drain of class-action cases on the U.S. economy.
Since 1996, 41% of the roughly 6,000 companies currently listed on the three major U.S. exchanges have been named as defendants in at least one federal securities class-action suit, the study found.
As recently as 2004, securities suits accounted for almost half of all federal class actions in the U.S., the study found.
Non-U.S. companies also are increasingly finding themselves subject of securities suits in the U.S. - with a 73% increase in filing against overseas companies last year, the study found.
The rise in class-action suits and settlements have been lucrative for plaintiffs' lawyers, with nearly $17 billion in legal fees being paid out in settlements since 1998, the study said.
The ILR also claims the system is rife with abuse, pointing in part to kickbacks paid by Milberg LLP to clients to ensure the firm had plaintiffs ready to bring lawsuits.
The law firm agreed to pay $75 million and admit wrongdoing as part of an agreement with prosecutors in June, in which it avoided a criminal trial. Four of Milberg's former partners, including Melvyn Weiss and William Lerach, have pleaded guilty in connection with the kickback scheme.
The study said the Securities and Exchange Commission, the Justice Department, state regulators and self-regulatory organizations are better suited to monitor and punish securities fraud in the U.S.
In its study, the ILR called for a number of legislative changes that it believes will improve the system and reduce the cost to companies:
* Requiring clients to provide detailed documentation and verification of their losses to prevent plaintiff's lawyers from inflating the number in order to obtain appoint as lead counsel.
* Curb abuse of civil discovery by shifting the cost to plaintiffs when discovery requests aren't justified.
* Refine damage measures by moving toward a system that focuses on the defendant's gain and gives priority to small retail investors in the distribution of settlement funds
The ILR also called for the passage of the "Securities Litigation Attorney Accountability and Transparency Act," which has been introduced by Sen. John Cornyn and Rep. Jeb Hensarling, both Texas Republicans. The legislation is designed to promote transparency and better oversight in how class counsel are chosen and compensated.
However, the plaintiffs' bar believes class actions remain a valuable tool for investors to recover money lost as a result of fraudulent activities by executives at public companies.
"Securities class action hold corporations accountable and prevent them from deceiving shareholders," said Jon Haber, chief executive of the American Association of Justice, a group that represents trial lawyers.