There’s a “Firm” Reason Why Shareholder Lawsuits Are Down

According to the Wall Street Journal, in a subscription-only editorial, that “firm” reason is the indictment-induced inactivity of law firm Milberg Weiss:

Lawsuits are certainly down, but a closer inspection of the numbers shows that the drop-off directly correlates with the decline in filing by one law firm: Milberg Weiss. Long the nation’s premier class-action generator, the entire firm and two partners were indicted in May of paying off their class-action plaintiffs.

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.

These numbers are more than a coincidence, and should put to rest the assumption that Sarbanes-Oxley or better corporate governance standards are producing fewer causes of legal action. Securities lawyers have long understood that most class actions have little or no substance but are manufactured by the plaintiffs bar to pad their own pocketbooks.

Good.