The number of plaintiffs filing class action securities suits against companies listed on U.S. exchanges thus far this year - and the value of damages they sought - is below historical averages.
According to a recent report from Cornerstone Research Inc. and Stanford Law School's Securities Class Action Clearinghouse, 85 filings were brought in the first half of this year, the likely result of comfortable market conditions, legal experts say.
If the pace keeps up for the rest of the year, companies will likely see around 170 cases filed, a drop from the yearly average since 1997 of 188 filings, according to the report.
In the current bullish state of U.S. markets, with deal making expanding, low interest rates and company valuations strong, shareholder securities claims are bound to subside, said James N. Kramer, a partner with Orrick, Herrington & Sutcliffe LLP.
"The starting point for having fertile ground to file cases is high valuation and a decline in stock prices," Kramer said. "With companies meeting or exceeding [expectations], there isn't volatility."
The connection between filing claims, commonly referred to as "stock drop cases" by defense attorneys, and economic downturns is reliable for the most part, said John Gould, senior vice president at Cornerstone. A sudden deflation on Wall Street can easily move the needle, he said.
"Everything's pretty quiet right now," Gould said. "When the market is more volatile, we'll likely see more cases being filed."
And there could be more variables in play - the evolution of corporate governance being a primary consideration, said Michael D. Celio, a partner with Keker & Van Nest LLP.
In a statement accompanying the report, Stanford Law School Professor and former SEC Commissioner Joseph A. Grundfest also posited that the dropoff in filings could be partly attributed to "the fact that many of the major accounting scandals now appear to be happening outside the United States."
The report noted that securities class actions against companies headquartered outside of the U.S. increased in the first half of this year, with 20 filings targeting foreign firms. Companies in Asia were tied to more than half of those cases, the report stated.
The overall value of monetary claims dropped by 43 percent to $34 billion so far this year compared to the half-year average of $60 billion since 1997. And less than 2 percent of S&P 500 companies faced securities claims, according to the report.
"These cases are somewhat cyclical, but I think that anyone saying this is only a result of the cycle is missing some changes," Celio said. "Corporate governance has changed significantly and become more sophisticated than when I started practicing."
Bigger budgets, larger legal departments and a growing awareness of securities case law and practice are building the bulwark for corporate defense.
The report pins 2006, with 120 filings, as the least volatile year since 1997. As the mortgage market started to crumble in 2007, filings rose to 177. In 2008, companies engaged 223 cases. That's still under the levels of litigation in the late '90s. In 1998, for example, shareholders and investors filed 242 suits.