Class-action lawsuits filed over Securities fraud reached an all-time low in 2006, according to the latest figures from Stanford Law School.

The data from the Stanford Law School Class Action Clearinghouse, found that securities fraud suits dropped 38 percent from 2005. The number of suits fell from 178 in 2005 to 110 in 2006. That puts the total down almost 43 percent from the 10-year historical average of 193.

So-called "mega-filings", which cover disclosure dollar losses of more than $5 billion or maximum dollar loss less than $10 billion, also fell. In 2005, there were five such filings but in 2006 there was only one.

The figures become even more striking when you take out the 22 backdating cases. Then the figure drops down to only 90 cases, down 53 per cent from the historic norm.

The decline in lawsuits has been attributed to three factors. First, there's been a stronger and less volatile stock market. Secondly, it's a significant drop on the peak figures of the late 1990s to early this century when most of the securities class actions were filed, although these latest figures are even lower than the pre-peak data. And finally, its been attributed to more rigorous enforcement from the Securities and Exchange Commission and Department of Justice.

The question now is whether the trend will continue.

With Enron and WorldCom now relegated to ancient history, the campaign to weaken Federal oversight of big business is gathering momentum.

First, we have seen the SEC buckling to years of fierce corporate lobbying and taking the first steps to watering down Sarbanes-Oxley by allowing companies with smaller market values more flexibility in assessing the strengths of their internal controls under Section 404. That's all well and good, but the small caps have a track record for dodgy deals, stock manipulation and fraud, so the question is whether the new flexibility will cause problems in the future.

And because SOX-bashers say the SEC's changes have not gone far enough, you can expect more pressure to dismantle the legislation.

Secondly, we have seen the Department of Justice recently announcing new set guidelines for federal prosecutors pursuing cases against corporations which will restrict their ability to pressure companies under investigation to waive the confidentiality of their legal communications. While detractors of the old rule say it was abused, the measure had been used to pick up evidence against fraudsters.

For an interesting analysis of the trend to weaken Federal controls over corporations, check this piece in the Corporate Research Project e-letter.

Next year's data from the Stanford Law School Securities Class Action Clearinghouse should be interesting. Not to mention the figures the year after that.