Watch Out! Shareholder Lawsuits Are Up

Last Updated Apr 14, 2008 3:05 PM EDT

CEOs, take cover! Shareholders lawsuits are back and are on the rise.

According to "Corporate Board Member" magazine, the number of lawsuits in 2007 rose to 166 compared with just 116 for 2006.

Some obvious reasons are the stock backdating scandal that burst on the scene two years ago and more recent sub prime mortgage messes that wreaked havoc on housing lenders such as New Century Mortgage and Countrywide Financial, not to mention the forced fire sale of Bear Stearns.
While "core" litigation continues to be low, the number of lawsuits is expected to rise this year as the financial meltdown spreads, "Corporate Board Member" reports. A number of financial houses are expected to be in the sights of legal hired guns for their role in creating and selling securitized versions of weak mortgages. The backdating scandal, however, appears to have run out of steam.

To be sure, some of the increase in filings appears to be cyclical. But the prevailing news of the day has an impact. The 2006 filings drop was attributed to a number of disparate causes including rulings forcing silicosis lawsuits to move from state to less-lenient courts to the fraud indictments of investor lawsuit kingpin Milberg Weiss Bershad & Shulman. And, of course, there is the impact of the Sarbanes-Oxley Law, which some believe succeeded in giving shareholders less to be angry, and sue, about.

Tough economic times make for testy shareholders. Until markets calm down lawsuits will increase. At least 23 alone were filed in the second half of 2007 regarding sub prime controversies.