We are discussing the recent report, “Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,” published by the Institute for Legal Reform of the Chamber of Commerce.
The Report emphasizes the increase in the number of class action suits that have been filed in the first half of 2008. During the six month period, according to the report, the number of filings increased by 60% from the same period in 2007. Moreover, the number of suits filed in 2007 was 58% higher than in 2006.
True enough but what the report mentions nowhere is the cause for much of the uptick. The implication is that matters have returned to the pre-PSLRA days when litigation was out of control. But the reasons for the increase have a more specific explanation entirely omitted from the report.
The Chamber report never uses the words "subprime," which says a considerable amount about the report's neutrality (or lack thereof). According to NERA, 51% of the filings made in 2008 since June 30 have been "related to the subprime collapse." In other words, the Chamber study pretends that the increase is a capital markets wide phenomena without making any attempt to isolate the impact of the current subprime problem.
Similarly, the report contends that settlements have "skyrocketed." It points in particular to the data from 2007. "The total value of securities class action settlements in 2007 was nearly 15 times the total in 1998." The report likewise noted that 2007 "featured the highest median settlement amount ever." NERA, however, has a different take. "Even as filings were increasing in 2007 and 2008, average settlement values remained around $30 million. Removing settlements over $1 billion from the calculation, the 2008 average settlement actually fell to $10 million, well below the level of recent prior years, and much closer to the 2008 median of $6 million."
In other words, the data is not as bad as the Chamber makes it out to be. Moreover, none of the reforms suggested by the Chamber address any of the problems associated with the subprime crisis. Indeed, the reforms would make all securities suits more difficult to bring, essentially making it harder for shareholders injured in the subprime fiasco to vindicate their rights. In other words, the reforms are not about preserving the integrity of the capital markets in the US but simply cutting of causes of action that arise even out of meritorious facts.