The Week In Review (December 21-27, 2007): Securities Suits Are Up As The War on Insider Trading Continues Abroad
The number of securities class action suits had been declining – until this year. According to a newly published report by NERA Economic Consulting, securities class action suits will increase this year by about 58%, to 207 new filings compared to only 131 a year ago. To be sure, the expanding crisis in the subprime mortgage market is contributing heavily to the recent surge in class actions. According to NERA, 38 subprime suits have been filed in the last six months, with more undoubtedly on the horizon. NERA’s Press Release is available here.
The crisis in the credit markets is not the only reason for the sharp increase in securities class actions. Even when the subprime cases are set aside, the filing of securities class actions increased this year by 40% when compared to 2006. Apparently the Supreme Court’s decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007), construing a key pleading requirement for class actions in a manner which many commentators thought favored business has not deterred the filing of these cases. Likewise the pending decision by the Supreme Court in Stoneridge v. Scientific-Atlanta, Inc., No. 06-41, which will resolve a key issue over the scope of primary liability under antifraud Section 10(b), the basis for most securities class actions, does not seem to be inhibiting the filing of these cases.
One reason may be the settlement value of securities class actions, most of which do not go to trial. According to NERA, payouts for settlement this year will be up about 50% when compared to 2006. In 2007, the average settlement is expected to be about $33.2 million, while the median was slightly less than $10 million. Approximately 8% of those settlement are over $100 million. In 2000 only 2% of the settlements reached that number.
Abroad, the war on insider trading continued. In Melbourne, Australia computer consultant Peter R. Woodland pled guilty to one count of insider trading and one count of illegal tipping. Mr. Woodland was charged with misappropriating inside information concerning the then-pending take over of the Cerro Negro gold mine project in Argentina by Western Australian mining company Kanowna Consolidated Gold Mines Limited (now known as Andean Resources Limited). After learning of the pending acquisition while serving as a computer consultant to Kanowna, Mr. Woodland purchased shares in Kanowna and passed the information on to another. The share price jumped over 100% after the 2003 announcement of the takeover. Mr. Woodland received a two year suspended sentence.
In Indonesia, nine existing and former officials of PT Perusahaan Gas Negara were fined a total of 3.2 billion rupiah ($337,636) for insider trading. The officials traded shares of the company just prior to an announcement that there would be a delay on a pipeline project that was expected to double sale of the fuel. The share price fell 23% following the announcement.
Finally, market officials in the People’s Republic of China have issued draft rules aimed in part at clamping down on insider trading. Over the past year, the benchmark CSI 300 Index has more than doubled. At the same time, according to officials of the China Securities Regulatory Commission, insider trading and manipulation have increased and are seriously disrupting the market.