Other Factors at Work
James Cox, a securities law professor at Duke University, said companies have improved their financial reporting and audit practices, which have led to less securities litigation. However, "other factors besides Sarbanes-Oxley are at work," he told SCAS Alert. After an unusually high number of cases in 2003 and 2004 that followed the collapse of the Internet stock boom or targeted the underwriters of Enron, WorldCom, and other bankrupt firms, "we're seeing the filings in 2005 and 2006 go back to a more normal level," Cox said.

In addition, U.S. stock markets have been rising over the past 18 months, which leads to fewer securities lawsuits. "People tend to bring more suits in a falling market," Cox noted.

Another factor that likely has contributed to the decline in this year was the indictment of Milberg Weiss Bershad & Weiss and two senior partners in mid-May. The historically prolific plaintiffs' firm has filed 17 cases in 2006, down from 55 cases in the first half of 2005, according to Reuters, which based its count on the firm's press releases. A Milberg Weiss spokeswoman said the firm is focusing on large cases and "is being more selective in its selection of new cases," and she noted that the pending indictment "also had an impact on this decision-making process," Reuters reported.

Cyclical Pattern
Max Berger, a founding partner at Bernstein Litowitz Berger & Grossmann, a law firm that represents investors in class actions, said directors have been more vigilant because of fears of personal liability. "Once board members realized that they'd have to dip into their pockets if they did anything wrong, they started being the kind of policemen they should be," Berger told Agenda, a weekly newsletter that covers corporate board issues.

However, Berger noted that securities class actions rise and fall in cycles and said he does not expect the decline in new cases to continue.

Dr. John Gould, vice president of Cornerstone Research, said it's too soon to predict whether the decrease in lawsuits is part of a long-term trend. "Although there is no doubt that there has been a considerably lower level of filing activity over the last year, it is still too early to tell whether this represents a permanent shift," Gould said in the Stanford-Cornerstone press release.

For more on the Stanford-Cornerstone report, please visit here.

While investors appear to be bringing fewer securities class-action cases, they are still going to court to address corporate wrongdoing. The Stanford-Cornerstone data does not include the growing number of derivative lawsuits filed by shareholders over corporate stock option practices. From Jan. 1 through Aug. 31, investors had brought derivative suits against 60 companies in state and federal courts around the country, according to The D&O Diary, a web log written by Kevin M. LaCroix, an attorney with OakBridge Insurance Services. Derivative actions are brought by investors on behalf of the company and typically seek to recover damages from board members and other insiders.

According to the SCAS database, 99 securities class-action cases had been filed as of Aug. 30. Of those cases, 16 include allegations that the timing of stock option grants was manipulated.