During these tough economic times, the roughly 50% of all Americans who have their retirement and other investments tied up in the stock markets have a lot to worry about. Inflation. The mortgage meltdown. Rising fuel costs.
However, obscured by these recent crises is a proven threat that has destroyed billions of dollars of average shareholders’ wealth, year after year. The menace: securities class action lawsuits.
In order to better understand this growing threat, the U.S. Chamber Institute for Legal Reform (ILR) initiated a new, comprehensive analysis of securities litigation in America. The recently issued report, “Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform,” which builds on the work of previous capital markets commissions and academic research, lays out substantial evidence that securities class action lawsuits are endangering the health of U.S. businesses, the prosperity of American families and the strength of our nation’s global competitiveness.
If that weren’t bad enough, the analysis also reveals that the system is often subject to extortion and abuse – as we’ve seen in the indictments and jailing of some of America’s most prominent securities plaintiffs’ lawyers.
In short: America’s securities class action system is broken, and now is the time for Congress to fix it.
ILR’s report notes that the costs of the system, already in the billions of dollars each year, are rapidly climbing. Representing about one-half of all federal class actions in the U.S., new securities class action filings increased by 58% from 2006 to 2007. And according to a study released this week by Cornerstone Research and Stanford Law’s Securities Class Action Clearinghouse, the first six months of 2008 produced 63 class-action filings against the financial services sector – more than the total number from all of last year.
Securities class actions are growing, not only in number, but in impact. Last year saw the average estimated monetary losses in suits double from the year before. Also, businesses in 2007 saw their market capitalization plummet by a combined $151 billion the day after they were sued – a figure nearly double from 2006.
Lisa A. Rickard serves as president of the U.S. Chamber Institute for Legal Reform (ILR), where she provides strategic leadership to ILR's comprehensive program aimed at changing the legal culture that has resulted in our nation's litigation explosion.