BOSTON and PALO ALTO, Calif. — The number of companies sued in securities fraud class action litigation rose 43% between 2006 and 2007 in large part to the subprime mortgage crisis, according to a report from Cornerstone Research and Stanford University.
The number of cases rose from 116 to 166 over the past two years. Although litigation activity for 2007 as a whole was 14% below the ten-year historical average covering 1997–2006 of 194 companies sued per year, one hundred companies were sued in the second half 2007, a litigation rate that reversed a trend of eight consecutive quarters with below average litigation activity, the report noted.
The increase may not signal a long-term trend, according to the report. When litigation related to the subprime crisis is excluded from the calculation on the assumption that the subprime crisis is a nonrecurring event the resulting core litigation rate remains well below historical norms.
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"For the past two years, securities fraud class action litigation has been driven by market-wide events, such as the 2006 backdating scandals and the 2007 subprime crisis," said Joseph Grundfest, director of the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research. "If these systemic shocks are excluded from consideration, the 'core' litigation rate continues to be remarkably low."
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