In 2005, there were 168 new private securities litigation cases filed in the United States. This is the lowest number in nine years.
What is behind these lower numbers? One factor might be the current backlog of major cases—Enron, WorldCom, Adelphia, and so on—already being handled by the plaintiffs’ bar, consuming the time and resources of securities plaintiffs’ lawyers and causing them to delay new case filings. Another reason may be the hoped-for deterrent effect of Sarbanes-Oxley, as corporate executives observe the long prison sentences handed out in connection with Enron, Dynegy, WorldCom, Tyco, and other matters.
More vigorous investigation, enforcement, and prosecution by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) may also be helping generally, while the recently completed initial year’s Management Assessment of Internal Controls under Sarbanes-Oxley Section 404 may have helped management at publicly listed companies focus on improving internal accounting and reporting controls.
Simultaneous with the drop in case filings is a rise in the average cost of a private securities litigation settlement, which increased to $71.1 million in 2005, excluding the “mega-settlements” in the Enron and WorldCom matters. That number represents a 156% surge from the $27.8 million average value of settlements in 2004.
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