Contrary to expectations, the tighter regulatory environment has not resulted in fewer securities class-action lawsuits.
CFOs hoping for a continuation of the current dip in directors and officers (D&O) insurance premiums have been keeping their fingers crossed that the tighter regulatory environment of the past few years might make accounting fraud less attractive to potential wrongdoers, thereby bringing the number of securities lawsuits tumbling down. But there's no relief from that quarter on the horizon, says Daniel V. Dooley, New York City-based partner in PricewaterhouseCoopers LLP and leader of the firm's securities litigation consulting practice. "Over the last 10 years there have been approximately 190 private securities class actions per year," he reports. "It looks like it'll be the same this year. Through the second quarter of the year, we're still on the same average.
"From the Private Securities Litigation Reform Act in 1995 through Sarbanes-Oxley in 2002 to the present, [legislation] hasn't really made a dent on the number of SEC investigations or private securities litigation," adds Dooley. "Even though criminal and civil penalties have increased, we still have the same number of cases. There's always the same number of fraudsters out there -- people who are willing to game the system, even though they know they'll go to jail for a long time if they get caught."
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