Contributing to the dramatic rise in lawsuits this year are the 143 lawsuits related to Initial Public Offerings that name IPO underwriters and recently public companies as defendants. These lawsuits -- termed "laddering cases"--generally allege companies and their underwriters allocated shares in "hot" IPOs in exchange for excessive and undisclosed commissions, and for investor guarantees to purchase additional shares in the after-market. Every major investment bank has been named in the "laddering cases" and many are named in numerous lawsuits.
   

The majority of companies named in these lawsuits involve computer services, telecom companies and others in the high-tech sector that were taken public in the last three years. Until a few weeks ago, only NASDAQ companies were named in these suits. However on July 27, a New York Stock Exchange company was named.
   

"Many of the complaints may be without merit. A review of many of the case filings indicates complaints contain only generic allegations without detailing any wrongdoing specific to the individual matter," said Steve Skalak, managing partner, PricewaterhouseCoopers Securities Litigation and Corporate Investigations Practice. "However, plaintiffs will need to present specific wrongdoing in order to prove fraud and damages. And in preparation for their defense, investment banks will need to conduct internal investigations into underwriters' activities."
   

Aside from the "laddering cases," shareholder class action lawsuits alleging accounting fraud also continue at high levels. Through June 30, nearly 48 percent of non-IPO related cases filed allege financial fraud. Last year, fifty-three percent of all cases filed in 2000 contained financial fraud allegations.
   

At least 58 percent of the 2001 financial fraud cases involve companies that have restated earnings or plan to restate earnings. Last year 47 percent of the accounting cases involved a restatement of earnings.
   

"There continues to be increased scrutiny by the SEC. The downturn in the economy has also increased scrutiny from shareholders," said Harvey Kelly, partner, PricewaterhouseCoopers. "The number of cases alleging securities fraud will remain high as a result."   

 

PricewaterhouseCoopers Securities Litigation Study 2000, as well as a list of current securities litigation lawsuits can be found at www.10b5.com.