Overall, 2006 was yet another busy year of investigations, litigation, and regulatory actions, and was no less costly than prior years. The number of federal securities litigation class actions fell significantly but shareholder activism by no means diminished, and settlements remained high.
By far, the biggest issue of the year was stock options backdating. Although shareholders stepped into the fray on this issue, they did so in the majority of these cases by way of 108 derivative actions filed in state court. Only 20 cases were filed in federal court as private securities class actions.
Considering the total derivative actions filed in respect of the options-related cases together with the total federal cases analyzed in this
PricewaterhouseCoopers 2006 securities litigation study, a more stable level of shareholder activity begins to emerge in comparison to previous years. The resulting 214 cases filed in 2006 is higher than the 173 total cases analyzed in 2005, and not so different from the average of 218 total cases filed since 2002. Therefore, rather than concluding that shareholder litigation has decreased, the more relevant observation is the shift in venue and the type of action employed to address shareholders’ protestations.
Settlements in 2006 remained high and, notably, the largest settlement (for $2.2 billion) fell at the door of Nortel, a foreign registrant—proving that non-US registrants are as much at risk as any domestic registrant in US capital markets. Settlements with regulators, including the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ), continued unrelentingly, with some reaching amounts greater than $400 million.
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