2009 saw fewer securities class-action filings than the prior year, marked by a slowdown in the number of credit crisis cases filed, according to two separate reports detailing trends in securities class-action activity.

An annual report by the Stanford Law School Securities Class Action Clearinghouse and Cornerstone Research finds that federal securities fraud class-action activity in 2009 was "down sharply" compared to 2008 and historical averages.

The report, Securities Class Action Filings-2009: A Year in Review, includes class actions identified as of Dec. 21, 2009. Multiple filings related to the same allegations against the same defendant(s) areconsolidated and counted as one legal action or "filing." The report sample also excludes IPO allocation, analyst, and mutual fund filings.

According to the report, 169 federal securities class actions were filed in 2009, down 24 percent from the 223 filed in 2008, and 14 percent below the average of 197 between 1997 and 2008.

Commenting on the findings in a press release accompanying the report, Cornerstone Research Senior Vice President John Gould said it's no surprise that filings decreased this year.

"Historically, periods of high market volatility coincide with a greater level of securities class-action filings," Gould said. "After sharply rising for two years, market volatility decreased in the first half of 2009 and then fell again in the second half of the year."

The drop in litigation activity related to the credit crisis was even sharper, with just 53 filings in 2009, down 47 percent from the 100 filings in 2008. The Stanford/Cornerstone report notes that just 17 of those filings occurred during the second half of 2009.

Stanford Law School Professor and Securities Class Action Clearinghouse Director Joseph Grundfest noted that plaintiffs "simply ran out of financial firms to sue, and the rising stock market made it harder for plaintiffs to assert claims."

The report notes that an "unusually large number" of 2009 filings showed a substantial lag between the end of the class period and the filing date. During the second half of the year, the median filing lag was 100 days, more than three times the historical average, driven by a sharp increase in filings with a lag longer than one year.

According to Grundfest, the increase in old claims suggests that plaintiffs "are trying to fill the litigation pipeline by bringing older lawsuits that weren't attractive enough to file while the firms were busy pursuing financial sector claims."

The report further notes that, historically, filings with longer lags have been dismissed at a higher rate than filings with shorter lags.

Noting that one plaintiff law firm, Coughlin Stoia Geller Rudman & Robbins, was involved in filing most of the delayed claims, Grundfest observed that the spike in old filings "may reflect factors idiosyncratic to one large plaintiff firm's strategy and have little to do with larger market forces."

The financial sector again had the highest level of litigation activity with 84 filings, representing roughly half of all filings, while the consumer non-cyclical sector saw 33 filings and the communications sector saw 12 filings.

The top three circuits by litigation activity remained the same in 2009. The Second Circuit again had the most securities class-action complaints filed, with 64, followed by the Ninth Circuit (40), and the Eleventh Circuit (14).

Continuing trends seen in recent years, more Section 11 and Section 12(2) allegations were filed accounting for 26 percent and 24 percent of 2009 filings respectively, while fewer filings included Section 10b-5 claims (66 percent). Underwriters were named as defendants in 18 percent of initial complaints, a slight increase from the 17 percent in 2008 and well above the previous three years. Initial complaints naming an auditor defendant increased to 7 percent, the highest level in the past five years. The percentage of filings with allegations regarding false forward-looking statements declined to a historically low 50 percent of filings, compared to 68 percent in 2008 and 81 percent in 2005.

The full report is available here.

Meanwhile, a separate report by NERA Economic Consulting based on data on filings and dismissals through Nov. 30, 2009, and settlements through Dec. 31, also reported a year-over-year decline in 2009.

NERA's report, Recent Trends in Securities Class Action Litigation: 2009 Year-End Update, projected securities class-action filings to reach 235 in 2009, down from 253 filings in 2008. However, that still greatly exceeds filings in 2005 and 2006, before the start of the credit crisis, NERA noted.

The NERA report notes that most of its summary statistics below are based on data for cases filed in U.S. federal courts. Until cases are consolidated, NERA reports multiple filings that potentially are related to the same alleged fraud if complaints are filed in different Circuits, and multiple filings if different cases are filed on behalf of investors in common stock and other securities.

By NERA's count, more than 60 credit crisis cases were filed through Nov. 30. However, the pace of those cases gradually declined throughout the year, with first-half filings outnumbering second-half filings by approximately two to one.

In 2008, over 40 percent of cases filed were credit crisis cases. That proportion decreased to around 30 percent in 2009.

The authors of the NERA report noted a new litigation phenomenon in securities class-action filings in 2009: Filings on behalf of investors in various exchange-traded funds. NERA reports 13 ETF-related securities class-action cases filed between August and November 2009.

The median settlement value excluding IPO laddering settlements for 2009 was $9 million, similar to the 2007 and 2008 medians. NERA noted that the average securities class-action settlement in 2009 was $12 million, the lowest settlement value this decade, driven by the "outlier" settlement of 309 IPO laddering cases which settled for an aggregate $568 million, an average of less than $2 million per case. If that outlier settlement is removed, the average settlement value rises to $42 million.

NERA Senior Consultant and report co-author Stephanie Plancich noted that investor losses have historically been the "single most powerful determinant of settlements."

In recent years, median investor losses for settled cases have been well over $300 million, Planich noted. For cases filed in 2008 and 2009, though, median investor losses have been almost 40 percent higher, over $500 million.

"This may be an indication that although there has not been an upward trend in recent settlements, future settlements may be larger once these recently filed cases begin to settle in more substantial numbers," Planich said in the press release accompanying the report.

The full report is available here.