LAW SUITS AGAINST FINANCIAL SERVICES COMPANIES ON THE RISE
Major financial institutions are facing an increased rate of litigation. A recent report by the Stanford Law School Securities Class Action Clearinghouse, in cooperation with Cornerstone Research, cited a 19% increase in federal class action suits. The financial service industry was hit with 210 law suits last year, compared to 176 filed in 2007 and 116 in the prior year.
On a national level, securities class action law suits increased dramatically due to subprime and liquidity crisis litigation toward at the end of 2007. Subprime and liquidity crisis-related suits first appeared in 2007, with 39 filings. There were 76 such filings in 2008. An additional 21 suits were filed over auction-rate securities, the first time such actions have been broken out by the survey. The first wave of lawsuits arose out of the mortgage and subprime liquidity crisis. More law suits followed focused on auction-rate securities cases.
The Bernard Madoff Ponzi scheme received international media attention with a reported $52 billion involved. Investors in Houston, Texas were hit hard by a similar impropriety by Stanford Financial. Billionaire Robert Allen Stanford is under investigation from the SEC for alleged fraud involving an $10 billion CD scheme.
The study noted that over 100 S&P-500 financial firms had been sued, almost doubling the number from 2007. The report indicated that 9.2% of companies on the S&P index were sued, versus 5% in 2007. Federal Courts in the 2nd U.S. Circuit Court of Appeals recorded the largest increase in lawsuits against all defendants with 92 suits filed, up 58.6% from the 58 of 2007 and 112% from the 42 claims averaged in the last ten years. The Southern District accounted for 85 of the Circuit cases. The study only included complaints filed before December 15th, but 16 additional cases were filed nationwide between then and the end of the year.
SOURCE: NEW YORK LAW JOURNAL