Securities Filings Down in First Half

Decline reflects a fall-off in Chinese reverse mergers and M&A.

Federal securities class actions decreased in the first half of 2012 compared with last year largely because of a decline in Chinese reverse mergers and the lowest number of mergers and acquisitions since the third quarter of 2009, according to a study.

According to the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research, 88 federal securities class-action, or group, lawsuits were filed in the first six months of this year, a reduction of 6 percent from both the first half and second half of 2011.

Stanford Law School and Cornerstone reported five securities class actions filed over Chinese reverse-mergers in the first half of the year, a 79 percent decline compared with the same period last year, and seven such filings related to mergers and acquisitions in the past six months, a 67 percent decline from the same period in 2011.

The decline in filings stemming from Chinese reverse mergers isn’t a surprise because “that sector of the market has already been badly hit by concerns over the integrity of Chinese private-company financial statements and these deals have been disappearing from the market,” Joseph Grundfest, a professor at Stanford Law School, said in an e-mailed statement.

Fewer lawsuits over mergers and acquisitions are directly related to a low deal count, Grundfest said. “You can’t bring merger litigation over a merger that hasn’t happened,” he said in the statement.

While class actions over Chinese reverse mergers dropped, filings against foreign issuers as a percentage of all lawsuits were greater than every year since 1997, with the exception of last year, according to the study.

The greatest number of such filings reported since Stanford Law School and Cornerstone started tracking the data in 1997 was 127 in the first half of 1998. The lowest number, 55, was reported in the second half of 2006.

Future filings may result from allegations of Libor rigging, according to Grundfest. Regulators in the U.S. and Europe are probing more than a dozen banks worldwide over allegations they manipulated Libor, a benchmark for financial products valued at $360 trillion worldwide. Investigators are examining whether traders colluded to rig the rate for profit and whether banks understated their borrowing costs to appear healthier than they were.

“The magnitude of the potential exposures and the complexity of the underlying damages claims will likely generate large amounts of litigation activity in many geographies,” Grundfest said in the statement.

“Much of that litigation activity will occur away from the U.S. class-action securities fraud sector, but more lawsuits are virtually assured,” Grundfest said.


 

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