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Subprime crisis drives litigation

Filed in archive litigation by leon on April 10, 2008

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Earlier this month, I looked at how class actions were on the rise, up 21 per cent, from 92 in 2006 to 111 in 2007. At the time, I suggested that the subprime crisis may well drive the trend and send even more companies to court.

Now that's been confirmed with latest research from ISS RiskMetrics showing that shareholder activism and litigation has increased as a result of the credit crisis. a significant number of subprime-related lawsuits in 2007, and litigation is expected to increase in 2008. The research found that as of early April 2008, there were at least 67 subprime related securities class actions, targeting underwriting firms, investment managers, home builders, and mortgage lenders.

There were also worrying signs that the litigation has spread beyond companies with direct ties to the traditional subprime related fields. Companies facing issues concerning valuation of subprime related assets such as asset-backed securitieslinks held as investments or cash equivalents by the company are now being hit. And Fitch Ratings warns this is going to be a nightmare for insurers providing cover for directors and officers.

The big question is whether the litigation will spread beyond the financial services sector. Whatever the answer, one thing's for sure: this is just the beginning.

Still, predicting there will be a wave of litigation is easy. For that matter, filing the lawsuits is pretty easy too. But resolving the problems surrounding assumptions involving projected prepayment rates, projected delinquencies and defaults, projected losses, and discount rates is a lot more difficult. Which means the litigation will drag on for years which means companies will be spending millions of dollars on lawyers, experts, accountants, and various consultants.


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Tags: subprime  litigation  2007  crisis  2008  subprime+crisis  conrad+black  drives+litigation 

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Related Entries:

Litigation Avoidance - 16 May 2006

Subprime tremors: is this the tipping point? - 15 March 2007

Subprime litigation - 16 August 2007

Shared photo leads to litigation - 02 October 2007

SEC litigation and share price - 26 February 2008

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