HomeAbout UsIndexEditor ProfileTerms and ConditionsContact Us

2005 Securities Class
Action Case Filings

Securities Fraud Lawsuits and Investor Losses
Drop Significanly in 2005;
Stable Stock Prices and Improved Governance
Are Possible Causes of the Decline

Cornerstone Logo

Gould Photo
John Gould, Ph.D.
Vice President
Cornerstone Research
See also:
2003 Securities Class Action Settlements
2004 Securities Class Action Case Filings
2004 Securities Class Action Case Settlements
2005 Securities Class Action Settlements
2006 Mid-Year Assessment: Securities Class Action Case Filings
2006 Securities Class Action Case Filings
2006 Securities Class Action Settlements

marginA report Just released by the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research finds the number of securities fraud class actions filed in 2005 decreased more than 17 percent compared to 2004 levels, falling from 213 filings to 176. The 2005 filing rate is nearly 10 percent below the 1996 – 2004 historic average of 195. See: 2005: A Year in Review.

Grundfest Photo
Joseph A. Grundfest, Esq.
Professor, Law and Business
Stanford Law School

marginSignificantly, the study also finds that investor losses related to these lawsuits decreased dramatically in 2005. The Clearinghouse’s Disclosure Dollar Loss Index (DDL Index™) measures the decline in the defendant firm’s market capitalization at the end of the class period (usually the time of the disclosure of the alleged fraud). The DDL decreased 33 percent, from $147 billion in 2004 to $99 billion in 2005. Compared to 2001 and 2002, the DDL was off by more than 49 percent and 51 percent, respectively.

marginThe pig may have moved through the python," said Stanford Law School Professor Joseph Grundfest, Director of the Securities Class Action Clearinghouse and former Commissioner of the Securities and Exchange Commission. "Two factors are likely responsible for the decline. First, lawsuits arising from the dramatic boom and bust of U.S. equities in the late 1990s and early 2000s are now largely behind us. Second, improved governance in the wake of the Enron and WorldCom frauds may have reduced the actual incidence of fraud."

marginThe decline in stock market volatility in 2005 may be yet another reason for the lower intensity of securities class action filings. "Our observations over the past decade indicate that lower market volatility tends to be associated with a lower number of filings," explained Dr. John Gould, vice president of Cornerstone Research and contributor to the study.

margin"Only time will tell whether this decline in litigation activity is transient or the start of a longer-term trend," Grundfest added.

margin Lawsuits filed in 2005 also tended to allege misrepresentations in financial reporting and false forward-looking statements more frequently than in the past. The percentage of filings alleging misrepresentations in financial documents increased from 78 percent in 2004 to 89 percent in 2005, and the percentage of filings alleging false forward looking statements increased from 67 percent in 2004 to 82 percent in 2005. The percentage of filings alleging GAAP violations and insider trading remained relatively stable.

margin"This trend suggests that the securities litigation market is now even more focused on the validity of financial results and forecasts presented in financial documents, such as SEC filings and press releases," said Gould.

marginAs for filings by industry, the study found that the technology and communications sectors — with filings down more than 32 percent from 2004 levels and 36 percent from historic averages — were no longer the major driver of securities fraud litigation in 2005. Instead, the consumer non-cyclical sector (e.g., biotechnology, commercial services, cosmetics/personal care, food, healthcare-products, healthcare-services pharmaceuticals, etc.) now gives rise to the most litigation.

marginThe report also found that the most active federal circuits in 2005, as measured by the number of issuers sued, were: the Second Circuit (New York) with 44 filings, the Ninth Circuit (California) with 38 filings, and the Third Circuit (Delaware/Pennsylvania) with 18 filings. When ranked by disclosure dollar loss, the top three circuits in 2005 were: the Second Circuit with $38 billion, the First Circuit (Massachusetts) with $17 billion and the Third Circuit with $10 billion. These data reflect a dramatic 41 percent decline from 2004 in the number of securities fraud lawsuits filed in the Ninth Circuit, a trend that it is correlated with the decline in litigation against high-technology firms that tend to be based in California.

marginThe Securities Class Action Clearinghouse is an authoritative source of data and analysis regarding the financial and economic characteristics of federal securities fraud class action litigation. See: A full *.pdf copy of this report can be downloaded at 2005: A Year in Review. Additionally, Professor Grundfest and Dr. Gould are available for interviews and speaking engagements.


Cornerstone Research provides financial and economic analysis in civil litigation and regulatory proceedings, and concentrates in securities, antitrust, intellectual property, energy and financial institutions litigation. Cornerstone Research helps to sponsor Stanford Law School's Securities Class Action Clearinghouse, the leading source of data and analytical information regarding the financial and economic characteristics of securities class action litigation.
John Gould, Ph.D.
Vice President — Boston Office

Cornerstone Research
360 Newbury Street
Boston, MA 02115


Email: John Gould, Ph.D.


Cornerstone Logo
Joseph A. Grundfest, Esq. William A. Franke
Professor of Law and Economics

Stanford Law School
Crown Quadrangle
559 Nathan Abbott Way
Stanford, CA 94305-8610


Email: Joseph A. Grundfest,


Multi-family Investments Banner

Your comments and suggestions for these pages are most welcomed!

[Return to Main Index] [Return to Home Page]

Thomas A. Faulhaber, Editor

Telephone: 617.232.6596 -- FAX: 617.232.6674

227 Fuller Street
Brookline, Massachusetts 02446.5757

Outsourcing Placard

Revised: January 9, 2006 TAF

© Copyright 2006 John Gould and Joseph A. Grundfest. / Cornerstone Research, All Rights Reserved


Buy best work from home jobs What is free from scam home job work Best work at home medical billing jobs When business from home work job opportunity This website has information on customer service work at home jobs This genuine work from home jobs This was work at home computer jobs online You could get legit work at home jobs bbb The best part time work at home jobs Whith legitamate work at home jobs The work from home customer service jobs You could get work from home computer jobs In the free scam free work at home jobs This no fee to work from home jobs This was best work at home jobs What is work at home mom job Get info on work at home secretarial jobs In the free work from home online jobs The best legal work at home jobs What data entry home job job work In work from home jobs for moms