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Securities Class Actions Continue to Fall; SEC Continues to Beef Up Enforcement Activity

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

April 15, 2010

In a post titled “Private Securities Litigation Continues to Fall”, Broc Romanek’s Blog recently summarized the results of a report by Cornerstone Research, “Securities Class Action Filings – 2009: A Year in Review”:

The latest report from Cornerstone Research shows a sharp drop-off in federal securities fraud class action filing activity in 2009. Continuing a trend that we have seen over the past few years, the 169 federal securities fraud class action filings in 2009 were off 24% from 2008, and were well below the historical average over the past ten years. Included in this big decline was a sharp retreat in credit-crisis filings, down nearly 47% from 2008 levels.

The chart on page 4 of the Cornerstone Research report shows an especially sharp decline when special cases, such as credit crisis filings and Ponzi schemes, are excluded.

Counterbalancing the drop-off in securities class action filings are the continued reports of the SEC’s efforts to beef up its enforcement efforts. In a Washington Post article, “SEC faces setbacks, skepticism in trying to reform its enforcement image”, Zachary A. Goldfarb outlines the SEC’s increased enforcement activity. He reports that SEC investigations more than doubled, from 233 in 2008 to 496 in 2009, and financial penalties increased from $1.03 billion in 2008 to $2.86 billion in 2009.

Comment: Goldfarb’s article focuses on the setbacks the SEC has encountered in beefing up its enforcement activities, which makes for interesting reading. However, the point remains that the SEC is more anxious than ever to bring enforcement proceedings. Compliance officers at public companies must continue to be vigilant to minimize exposure to disclosure-related liability. I included some tips in my previous post, “Don’t Get Caught Cheating”, and I will provide more tips in future posts.


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