Securities Fraud Class-Actions Fall as Crisis Cases Wane

The number of securities fraud class-action cases filed last year fell 19 percent as litigation over mergers and acquisitions and the credit crisis decreased, according to a report.

Major securities fraud cases in 2012 included litigation against Facebook Inc. (FB) over its initial public offering, and against JPMorgan Chase & Co. (JPM) over more than $6 billion in trading losses at the bank.

The 152 cases filed in 2012 fell from 188 in 2011 and represented the second-lowest level in 16 years, according to the report by Stanford Law School and Cornerstone Research, a consulting firm.

“The question is if this is the beginning of a long-term trend or a reflection that there haven’t been any market disruptions in the past year,” Mark Holland, a partner at law firm Goodwin Procter LLP, said in an interview. “I think it’s an aberration.”

Last year marked an end to securities fraud class-actions related to the credit crisis as no new cases were filed compared to three in 2011, according to the report. Credit crisis cases peaked in 2008 at 100.

Federal cases related to mergers and acquisitions dropped to 13 in 2012 compared with 40 in 2010 and 43 in 2011, according to the report. Those cases are now being pursued almost exclusively in state courts.

“The trends that we saw in the last few years just didn’t occur this year,” said John Gould, a senior vice president at Cornerstone, which prepared the report with the Stanford Law School Securities Class Action Clearinghouse.

Major Cases

Although there were no class-action credit-crisis cases, according to the report, Wall Street banks are still contending with lawsuits and claims over mortgage securities sold during the housing boom.

“Even though securities filings are down, it doesn’t mean securities work is down,” Holland said. “We’re still pretty busy with the backlog.”

Class-action securities filings against financial companies fell, according to the report. They were defendants in 15 filings, or 10 percent of all filings, compared with 25 filings in 2011 and 43 in 2010.

London Whale

In the case against JPMorgan, pension funds accuse the biggest U.S. bank of transforming the chief investment office from a risk management unit into a “secret hedge fund.” The so-called London Whale, the nickname of the U.K.-based trader Bruno Iksil because his trading book was so large, made a wrong- way bet on credit derivatives that led to the company’s single biggest trading loss and at one point wiped out as much as $51 billion in market value.

Other companies facing lawsuits filed last year include Hewlett-Packard Co. (HPQ), which was sued by investors after it recorded an $8.8 billion writedown related to Autonomy Corp., and Wal-Mart Stores Inc. (WMT), which was sued over bribery allegations.

Health-care, biotechnology and pharmaceutical companies had a larger share of filings, with 33 total, or 22 percent of all filings, compared with 28 filings or 15 percent in 2011, according to the report.

To contact the reporter on this story: David McLaughlin in New York at dmclaughlin9@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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