2011 securities fraud settlements lowest in decade

Posted by RJ & Makay on March 14, 2012

class-action-settlements, finra-arbitration-panel, sarbanes-oxley, sec, securities-fraud-settlements, whistleblower-lawsuits

2011 securities fraud settlements lowest in decade

The quantity and size of securities fraud settlements that won final U.S. court approval fell to the lowest level in a decade last year, according to a Stanford Law School and Cornerstone Research study released today.  The decline comes amid a significant drop in cases linked to accounting problems and Securities and Exchange Commission (SEC) enforcement activity.

As a result, investors are seeing fewer benefits than in the past from such actions.

The study found that in 2011 courts approved 65 such settlements totaling only $1.36 billion, down from 86 settlements totaling $3.21 billion in 2010.  The 2011 total is also less than the $2.78 billion recovered in 2003, the lowest previous amount that occurred one year after the passage of the Sarbanes-Oxley corporate governance law.

However, 2012 may see a turnaround in settlement totals, said Laura Simmons, a business professor at the College of William and Mary and co-author of the study.

“As we look at the potential impact of whistleblower lawsuits, we expect a further increase in SEC activity, which could result in a greater amount of private settlements,”  Simmons said.

The study found that:

  • Among 2011 settlements, allegations relating to violations of generally-accepted accounting principles were included in only about 45% of settled cases compared with almost 70% of settled cases sin 2010 and 68% for the prior five years.
  • Class action settlements involving accompanying SEC actions decreased to less than 10% in 2011 compared to nearly 30% in 2010.
  • In 2011, the average class period length for settled cases was 1.3 years, 32% shorter than the average class period for the prior five years.

A recent FINRA arbitration panel came out in favor of a Los Angeles brokerage firm.  The claimants, a doctor and his son, had charged that they suffered a large loss of money due to the inappropriate actions of the brokerage firm and one if its brokers.

In rejecting the claim, the FINRA panel stated that one of the claimants was “wealthy, financially sophisticated, and aggressive in his approach to investing.”  His losses stemmed from “his own independent decisions and market risks,”  the panel said.  The panel also found that the other claimant did not have a contractual relationship with the respondents.

The panel ordered the claimants to reimburse the respondents for all legal costs because of the frivolous nature of their claim and the “bad-faith abuse of the FINRA arbitration process.”

RJ & Makay




Securities fraud settlements in 2011 were lowest in decade (http://www.insurancejournal.com/news/national/2012/03/14/239318.htm).  Insurance Journal, March 14, 2012

FINRA dismisses investors’ complaint, awards legal fees to broker (http://www.newyorksecuritieslawblog.com/2012/03/finra-dismisses-investors-complaint-awards-legal-fees-to-broker.shtml). New York Securities Law Blog, accessed March 14, 2012

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