Institutional Investor Fraud Roundup: Decline in Securities Class Action Settlements, ESMA Recognizes US Credit Rating Agency Framework, and Court Dismisses Securities Lawsuit Against Mecox Lane

According to a report published by Cornerstone Research, there has been a decline not just in the number of securities class action settlements that the courts have approved, but also in the value of the settlements. There were 65 approved class action settlements for $1.4 billion in 2011, which, per the report, is the lowest number of settlements (and corresponding dollars) reached. That’s 25% less than in 2010 and over 35% under the average for the 10 years prior. The report analyzed agreed-upon settlement amounts, as well as disclosed the values of noncash components. (Attorneys’ fees, additional related derivative payments, SEC/other regulatory settlements, and contingency settlements were not part of this examination.)

The average reported settlement went down from $36.3 million in 2010 to $21 million last year. The declines are being attributed to a decrease in “mega” settlements of $100 million or greater. There was also a reported 40% drop in media “estimated damages,” which is the leading factor in figuring out settlement amounts. Also, according to the report, over 20% of the cases that were settled last year did not involve claims made under the 1934 Securities Exchange Act Rule 10b-5, which tends to settle for higher figures than securities claims made under Sections 11 or 12(a)(2).

Our securities fraud law firm represents institutional investors with individual claims against broker-dealers, investment advisors, and others. Filing your own securities arbitration claim/lawsuit and working with an experienced stockbroker fraud lawyer gives you, the claimant, a better chance of recovering more than if you had filed with a class.

In other securities fraud news:
The U.S. District Court for the Southern District of New York tossed out the securities lawsuit related to an IPO offering of common stock in Chinese internet company Mecox Lane Ltd. (MCOX). Per the court, the plaintiffs, who sued Mecox, its leading officials, and underwriters Credit Suisse Securities (USA) LLC and UBS AG (UBS), failed to adequately allege any materially false or misleading statements in the registration statement or prospectus for the 2010 IPO. (The plaintiffs, who bought the common stock after the IPO, claimed that the offering materials did not provide full disclosure regarding Mecox Lane’s financial state. When this information was disclosed in fourth quarter data, share prices dropped.)

Earlier this month, the European Securities and Markets Authority (ESMA) decided to recognize the U.S. regulatory framework on credit rating agency supervision. This will let financial firms in the EU keep using credit ratings that were issued in this country.

ESMA’s moves follows intense dialogue with the SEC and the Department of Treasury. If ESMA had chosen otherwise, companies throughout the EU would have had to obtain other ratings.

ESMA also gave mutual recognition to the regulatory frameworks for CRAs of Hong Kong, Canada, and Singapore because their respective models are equal in stringency to the EU. It will also decide whether to do the same for the regulatory frameworks of Brazil, Argentina, and Mexico.

Settlement Values, Estimated Damages, and the Number of Cases Settled in 2011 Experience Historic Declines, Cornerstone Research

Court Tosses 1933 Act Suit Over Chinese Firm’s IPO, Bloomberg/BNA, March 16, 2012

EU watchdog allows U.S. ratings use in Europe, 4-Traders, March 15, 2012

More Blog Posts:
SEC Chairman Schapiro Says Jumpstart Our Business Startups Act Needs Better Investor Protections, Institutional Investor Securities Blog, March 21, 2012

As the US House Passes Package of Bills to Open Capital Market Flow to Small Businesses, the Senate Prepares Similar Legislation, Institutional Investor Securities Blog, March 13, 2012

US Army Staff Sergeant Held in Afghan Civilian Massacre Was Once Accused of Securities Fraud, Stockbroker Fraud Blog, March 20, 2012