January 19, 2012 / 5:07 AM / 6 years ago

S&P 500, financials targeted less in lawsuits

3 Min Read

(Reuters) - Large U.S. companies are facing fewer shareholder securities fraud lawsuits than at any other time in the last decade, a trend that may persist as fallout from the 2008 financial crisis recedes.

Just 3.2 percent of all companies in the Standard & Poor's 500 in 2011 faced new securities fraud lawsuits seeking class-action status, an annual study of litigation released on Thursday shows. That's down from 5.4 percent in 2010, and 9.2 percent as recently as 2008.

The falloff was even more dramatic among S&P 500 financial services companies, where the percentage sued fell to 1.2 percent in 2011 from 31.2 percent in 2008, according to the study, by Stanford Law School and Cornerstone Research in Boston.

Plaintiffs did pursue more lawsuits in 2011, seeking 188 federal securities class-actions, up from 176 a year earlier.

But the pace of filings actually fell after discounting a surge in the number of cases targeting Chinese reverse mergers -- and even that trend is now abating.

Corporate mergers, meanwhile, were the basis for 23 percent of the new lawsuits, the same as in 2010 and higher than in previous years. These cases are often filed against acquisition targets and claim that takeover prices are too low.

"It's only the growth of merger-related litigation, which has historically been brought in state courts, that inflates the aggregate statistics so that they even approach historic norms," Stanford law professor Joseph Grundfest said in a statement.

Just 25 of last year's 188 lawsuits targeted financial companies, down from 43 in 2010 and 78 in 2009. A mere three concerned the financial crisis, down from 53 in 2009.

The 188 lawsuits alleged that shareholders lost a combined $106 billion during the respective class periods. Financial companies accounted for $32 billion of this sum, followed by communications companies at $28 billion.

A total of 33 cases concerned accounting and other claims tied to Chinese reverse mergers, up from nine in 2010.

These are where companies can avoid regulatory reviews typical of initial public offerings by acquiring U.S. "shell" companies and assuming their stock tickers.

Only nine of these lawsuits were filed after June, however, suggesting that the peak has already passed, the study said.

Reporting By Jonathan Stempel; Editing by Steve Orlofsky

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