Investor class-action lawsuits surge with subprime bust

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From Times staff writer Walter Hamilton:

The credit crisis now is playing out in courthouses around the country.

After declining in recent years, the number of investor class-action lawsuits is up sharply this year thanks to a surge in cases related to the collapse of the subprime mortgage market, according to a study from NERA Economic Consulting.

All told, there were 139 investor class-action cases filed in the first half of this year, by NERA’s count. At that rate, 280 cases would be filed this year, a 42% jump from last year and the most since 2002 -- when suits were flying in the aftermath of the technology-stock bust.

Slightly more than half the cases filed this year are subprime-related, including cases involving so-called auction-rate debt securities, the study found. And the subprime cases are for big money: The claimed investor losses are 10 times higher than in non-subprime cases, according to NERA.

The median loss alleged in the subprime cases is $4.5 billion, according to NERA. Some of the largest cases top $10 billion.

Not that investors are likely to get back much of the purported losses. The median investor recovery in class-action suits always has been small, and has dropped even further in recent years. The median recovery of settled cases so far this year is a measly 2.8% of claimed losses, down from 7.1% in 1996, NERA data show.

In part, the low recovery figures reflect that investor attorneys always claim the highest possible losses when they file a case. It also can be hard to extract much from deeply troubled companies, some of which already may be bankrupt, said Ronald Miller, a NERA vice president.

If there’s a bright side, it’s that investors who have losses tied to the subprime bust, and who had given up hope, ‘may be surprised to find out they’re getting something back,’ Miller said.