Most US shareholder class actions blame sub-prime

August 4, 2009

As featured in Financial News

More than half of shareholder class actions filed in US federal courts in the first half of this year included allegations about sub-prime, and involved losses of at least $200bn (€128.6bn), a study has found. 

Ronald Miller, vice-president at US economic analysts Nera Consultants, which helped compile the study, said the 139 actions against 49 listed companies extended "right through the sub-prime chain". The median loss of all the claims, arising from share price falls in 2008, was $4.3bn, almost 10 times that of cases not related to sub-prime, the study found. The report did not include cases relating to private firms. 

Talcott Franklin, partner at US lawyers Patton Boggs, said: "In sub-prime, everyone has to assume their actions will be scrutinised in litigation, because odds are they will be. We will continue to see a wave of litigation because we have not yet seen all of the losses".

He said that some investors could feel compelled to litigate as their own investors may sue them if they do not, adding that for banks involved in securitising or selling investors sub-prime loans, issues around disclosing exposure to the sub-prime sphere may come up in court.

Tom Custance, head of dispute resolution at London law firm Fox Williams, said he expected more sub-prime cases in the UK. Shareholder class actions may not occur as often in the UK, as UK directors have duties to companies, not shareholders, so compensation won through court goes initially to the company. 

Custance said UK courts would take "particular interest" where there were conflicts of interests in firms and could also examine what assessments banks made internally before the severity of the crisis was widely recognised. 

Swiss bank UBS is fighting claims by William Galvin, Massachusetts Secretary of State, that earlier this year UBS' brokers stopped being buyers of last resort in relation to auction rate securities, leaving investors without an exit.  UBS said it would defend itself against the allegations.

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