Securities fraud lawsuits on the rise

There were 210 securities fraud class-action lawsuits filed in 2008, a rise of 19% over 2007 and 80% over 2006, according to a report issued jointly Tuesday by Stanford Law School and Cornerstone Research.

The bulk of the rise in lawsuits can be explained by the writedowns that took place at nearly every financial company: The lawsuits allege that the firms overvalued their mortgage related assets. But more importantly, people are suing companies because they lost money on stocks: Anytime the market goes down, the number of lawsuits goes up.

What will come of these lawsuits? Probably relatively little: Banks will look to settle to avoid the expense and risk of litigation, lawyers will get richer and shareholders will get back a few pennies. Securities attorney Robert Giuffra Jr told (subscription required) The Wall Street Journal that "Plaintiffs lawyers will face an uphill battle if they claim that every bank on Wall Street was engaged in a separate internal conspiracy to commit economic suicide."

Do the banks deserve to be sued? Absolutely! But litigation seems unlikely to solve much here and the expense and distraction may even make things worse.