The SEC’s 2007 Performance and Accountability Report for its fiscal year ended September 30, 2007, is now available.  Some of the highlights of the Report, which is available here, include:

• There was a significant reduction in the SEC’s collections activity from 2006 to 2007.  According to the Report, “the variance in collection activity is due to a reduction in fair funds collections of $1,307.6 million for 2007, due to a lower volume of financial fraud cases with large settlements. In FY 2006, the SEC won fines and penalties in several large cases. These collections are expected to be distributed to harmed investors in subsequent years.” (p. 18)
• In FY 2007, the SEC distributed $580.5 million to harmed investors. (p. 18)
• In FY 2007, the SEC initiated 776 investigations, 262 civil actions, and 394 administrative proceedings. (p. 25)
• The SEC’s enforcement cases in FY 2007 resulted in a total of approximately $1.6 billion in disgorgement and penalties ordered against securities law violators.  (p. 25)
• As a result of SEC enforcement cases, approximately $13.8 billion in disgorgement and penalties from FY 2003 through FY 2007 were ordered to be paid to the SEC, courts, or other appointed trustees. More than 75 percent of the total amounts ordered had been collected by the end of FY 2007.  (p. 26)
• In FY 2007, 92% of the SEC’s cases were “successfully resolved,” i.e., resulted in a favorable judgment for the SEC, a settlement, or the issuance of a default judgment. (p. 27)
• In FY 2007, 54% of first enforcement actions were filed within two years of opening an investigation or inquiry, lower than the SEC’s goal of 66%. The SEC attributed this lower percentage to two factors: a higher than expected number of more complex cases (issuer reporting and disclosure cases) and the allocation of significant resources to the SEC’s effort to distribute and track Fair Funds to injured investors under Sarbanes-Oxley. (p. 27)

Among his predictions for the big stories that the mutual fund industry will see in 2008, Columnist Chuck Jaffe of the Arizona Daily Star sees a potential wave of class action lawsuits against funds that have been burned by the sub-prime mortgage problem.  He explains:

There hasn’t been a good wave of lawsuits against funds for years, but with funds like Regions Morgan Keegan Intermediate Bond and High Income, there’s little doubt that the plaintiff’s bar has potential cases to talk about. Those funds were each hurt in their own way by investments made in sub-prime mortgages; in the case of the RMK funds, the fallout was disastrous, amounting to losses surpassing 45 percent. Even in cases like Fidelity Ultra Short — down about 5 percent this year — lawyers will say the fund should not have lost money stretching out of its comfort zone in an effort to get additional yield.

On June 13, 2007, Stanford Professor Joe Grundfest spoke at a breakfast event entitled “The Times They Are A-Changin” at The Yale Club of New York City (details available here).  Among his comments were several bold predictions based on a two year lull in securities class action filings between July 2005 and June 2007:

• “The class action securities fraud litigation business will continue to shrink and law firms need to respond by shifting resources.”
• “We’re going to have to find other things to do with our time and I think that’s something to be celebrated.”  Grundfest compared the trend to doctors finding a cure for disease, which is a positive development but leads to fewer patients.
• While the number of securities fraud filings had been averaging about 200 annually, that number will probably be closer to 100 to 120 from now on, Grundfest said. There are several reasons for the trend, including there simply being less fraud, he said.

Not so fast.  It now appears that beginning a week or so following those remarks, the number of securities class action filings surged and returned to roughly the ”pre-lull” levels that had been the norm from 1996-2005.  According to Stanford Law School/Cornerstone Research’s just-released 2007 Securities Fraud Class Action Filing Report, “one hundred companies were sued in the second half of the year, a litigation rate that reversed a trend of four consecutive six-month periods with well below average litigation activity.”  The Report found that a total of 166 companies were sued in all of 2007.

The Report concludes that the increase in litigation activity in 2007 is attributable to both the subprime crisis, which has led to numerous securities class actions, and stock market volatility. The Report adds that “stock market volatility and the number of filings are correlated. On average, a 10-point change in the quarterly average S&P 500 Implied Volatility Index (VIX) is associated with 12 additional litigations per quarter.”

A Manhattan appeals court (NY Appellate Division, First Judicial Dept.) ruled December 27, 2007 that billionaire Sam Wyly, a major Computer Associates shareholder, was not entitled to obtain the work product of three plaintiffs firms in connection with his claim that the firms settled the CA securities class action for too little.

The court held that unlike a tradtional attorney-client relationship, in which the single voice of a client governs matters such as settlement terms, “the relationship between appointed counsel and an absent member in a class action differs fundamentally….”  The court added that:

In sum, while petitioner herein, as an absent class member in the federal action, was entitled to some of the benefits of the attorney-client relationship, such as the right to privileged communications with class counsel and the prohibition against attempts by defendants’ counsel to communicate with him, he had no right to direct the course of the litigation, testify at trial, participate in discovery, or dismiss class counsel. Moreover, petitioner was free to hire his own counsel to appear in the class action if he wished to employ a traditional attorney-client relationship, although his input into the litigation would still have been curtailed, or to opt out of the class action altogether if he was unsatisfied with his limited role.

The full opinion is available here.

If you are traveling on American Airlines in December make sure you listen to Dennis Michael of Sky Radio’s interview with GCG’s CEO David Isaac. Mr. Isaac is interviewed this month along with Starbuck’s CEO Jim Donald and Ecolab’s CEO Douglas Baker.

For those of you who are earthbound this month, you can listen to the interview here.

The class in the “Ivy House Gardens” litigation will likely be quite an angry bunch.   According to this report, a lawsuit seeking class action status against the Ivy House Gardens wedding facility was filed in Los Angeles Superior court after the facility abruptly closed in September 2007.  The putative class is

nearly 100 wedding parties who had scheduled events at the home and garden. Brides-to-be paid up to $21,000 in deposits and it is [believed] that the Ivy House Gardens made off with over $1 million….  After hosting weddings for 60 years at the Victorian style home, the Ivy House Gardens closed its doors on September 11, 2007, leaving dozens of wedding parties without a venue, explanation, or refund on their deposits.

Might want to have some security guards present for the depositions!

The trial in the JDS Uniphase securities litigation (previously discussed here) has reportedly entered its final week.  As discussed in this Mercury News blog post, the trial—the rarest of occurrences in securities class actions–is reaching its conclusion and a jury verdict is expected sometime after Thanksgiving. 

The article notes that JDS’ latest Form 10-Q discloses (see page 6) that

Plaintiffs have stated in recent court filings that they intend to seek a verdict of more than $20 billion in alleged damages. Plaintiffs’ expert witness on damages has generally testified to that effect in the pending jury trial. While there are many potential outcomes of the pending trial, in the event of a final, non-appealable and enforceable judgment against the Company that is in an amount commensurate with the Plaintiffs’ maximum theory of damages, it would not have sufficient assets to pay such a judgment.

“Collective Litigation in Europe,” a report based on a survey created by the Economist Intelligence Unit concerning the future of “group” or “collective” litigation in Europe, concludes that such litigation is increasing steadily.  The survey, which is sponsored by the law firm Bryan Cave, asked 242 lawyers and business executives across Europe for their opinions on questions related to group litigation.  The full executive summary and survey results are available here.

An actual trial–the rarest of occurrences in the securities class action world (see this post at Securities Litigation Watch for the latest, albeit dated, tally of such trials)–kicked off Tuesday in federal court in California. The Connecticut Retirement Plans and Trust Funds is lead plaintiff in the case against JDS Uniphase Corp. and four of its executives. As discussed in this Reuters article, the lawsuit alleges that defendants “lost $18 billion for investors by painting a rosy picture of the company’s finances when its stock was about to collapse.”

Labaton Sucharow’s Barbara Hart, lead counsel for the Connecticut Retirement Plans and Trust Funds, reportedly began her opening statement yesterday. JDS Uniphase, which is represented by Morrison & Foerster, is scheduled to present its opening statement today.

The SEC announced last week that following its most recent distribution of $356 million to investors harmed by the financial fraud at Fannie Mae, it has now “distributed more than $3 billion overall since the agency was given authority to send financial penalties from SEC enforcement actions to the victims of financial fraud.”

The SEC was given authority to distribute such penalties to investors under the Fair Funds provisions of the Sarbanes-Oxley Act of 2002 (prior to the passage of SOX, the SEC was required to send financial penalties from its enforcement actions to the U.S. Treasury).