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 Vice President Cornerstone Research |
Compared to other class action securities fraud complaints, Chinese reverse merger filings are more likely to allege violations of generally accepted accounting principles and financial restatements and are less likely to allege insider trading.
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 Professor, Law and Business Stanford Law School |
A notable development in 2011 was the finalization of the rules of the Dodd-Frank Whistleblower Program. The SEC published its annual report on the Dodd-Frank Whistleblower Program in November 2011, indicating that the SEC had received 334 tips since the rules were finalized on August 12, 2011. These tips spanned 37 states and 11 different foreign countries. About 9.6 percent of the tips received were related to tips involving foreign companies.
Commentary
Professor Joseph Grundfest, Director of the Stanford Law School Securities Class Action Clearinghouse in cooperation with Cornerstone Research:
“This corner of the litigation market continues to run at a pace well below historic norms. The rapid run-up and subsequent decline of litigation against Chinese issuers that entered the U.S. market through reverse mergers suggest that this form of litigation may be close to having run its course. The decline in financial crisis claims further depressed the overall statistics. It’s only the growth of merger-related litigation, which has historically been brought in state courts, that inflates the aggregate statistics so that they even approach historic norms. Taken together, these data suggest that there are far fewer claims of traditional securities fraud by U.S. issuers than has been the case since the mid-1990s.”Dr. John Gould, Senior Vice President of Cornerstone Research:
“While the number of securities class action filings in 2011 increased slightly compared with 2010, the number of filings and the associated market capitalization losses are still well below historical levels. Filings related to the financial crisis have continued to decrease, but we are seeing increases in the number of M&A filings. The upward trend of Chinese reverse merger filings peaked in the first half of 2011 and now appears to be dissipating.”“At mid-year, I noted that ‘We saw the lowest level of class action filing activity in S&P 500 companies since we began tracking this sector of the market in 2000.’ This remained true when all filings for the year were examined. The two historically most active sectors of the S&P 500, Financials and Health Care, had the fewest number of new filings compared with any year between 2000 and 2010.”
Additional Key Findings
In the second half of 2011, the median lag between the end of the alleged class period and the filing date of the lawsuit rose to 20 days, more than double the median lag of nine days in the first half of 2011. This represented the first increase in median lag since the second half of 2009. Despite the increase, it is still below the historical median lag of 27 days for the 14 years ending December 2010. This increase is associated with an increase in the number of filings with a six-month or longer lag. (See page 7.)
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John Gould, Ph.D. Vice President — Boston Office
Cornerstone Research 617.927.1500 Email: John Gould, Ph.D. jgould@cornerstone.com |
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Joseph A. Grundfest, Esq.
William A. Franke Professor of Law and Economics
Stanford Law School 650.723.2465 Email: Joseph A. Grundfest, Esq.grundfest@stanford.edu |
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Thomas A. Faulhaber, Editor
Email: editor@businessforum.com
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URL: http://www.businessforum.com/Cornerstone_11.html
© Copyright 2012 John Gould and Joseph A. Grundfest. / Cornerstone Research, All Rights Reserved
Revised: January 20, 2012 TAF