Tuesday, September 12, 2006
Annals of barratry: "The Milberg Effect"
The editors of the Wall Street Journal take a look($) at the significant recent decline in securities class-action suits against American public companies, but rejects the conventional wisdom that the Sarbanes-Oxley law's intrusive governance requirements are the reason:
According to Cornerstone, a research firm that tracks litigation, law firms filed 179 class actions last year. The first six months of this year saw only 61, a rate that would result in about 123 class actions for the year -- or a decrease from 2005 of 56 suits. Meanwhile, according to publicly available press releases, Milberg Weiss filed 91 of last year's suits. Yet in the first six months of this year, having come under prosecutorial scrutiny and lost many lawyers, the firm has filed only 17. At this rate, Milberg would tally about 34 suits for the year -- or 57 fewer than 2005.
Cutting through that, if we annualize the numbers from the first half, all the decline in securities class-action cases is attributable to the massive slow-down at Milberg Weiss.
Now, intellectual honesty requires me to note that the volatility of the entire stock market is apparently down at record lows this year. The much lower volatility of the market might reflect fewer dramatic changes in the prices of individual stocks. Since big swings in price imply big "damages" and therefore big settlements, it may be that the decline in lawsuits reflects lower volatility. If that were true, though, why would the decline in lawsuits be concentrated in one law firm?
Why has that firm stopped filing cases? Because Milberg Weiss collectively and two partners specifically were indicted in May for paying their class-action plaintiffs. We have always known that lawyers organize these suits for their own benefit, rather than waging them on behalf of genuinely aggrieved plaintiffs. If Milberg Weiss did anything genuinely original, it was to reveal that the emperor has no clothes.
Unfortunately, it is a sure bet that other firms are already scrambling to pick up Milberg Weiss' "market share." Cases will pick up next year as surely as the sun rises in the morning. The only way to reduce securities class-actions over the long haul is to increase pleading requirements and lower the fees that the lawyers who organize these cases collect when they are settled.
1 Comments:
By 
Georg Felis, at
Wed Sep 13, 12:38:00 PM:
This shows an obvious way to stimulate the US economy. Sue the class action lawyers, as a class action, in all the states.
