Just as litigation related to the subprime and financial crisis appeared to be on the decline, along comes an action that experts say could reverse the trend. Last Friday the Securities and Exchange Commission (SEC) announced that it is charging Goldman Sachs and one of its vice presidents with fraud in the structuring and marketing of a financial product tied to subprime mortgages as the U.S. housing market was beginning to falter. The news sent shockwaves through the financial markets and led to extensive media coverage over the weekend. In a comprehensive post on the Goldman fallout over at the D&O Diary today, Kevin LaCroix asks the question on everyoneÃ¢â‚¬â„¢s minds: will the SECÃ¢â‚¬â„¢s action against Goldman spawn further investor litigation? LaCroix cites several blog and press stories quoting plaintiffsÃ¢â‚¬â„¢ attorneys eager to pursue claims against Goldman. He also observes that investors who lost money in other subprime-related investments now may be asking whether their transaction involved the same kind of undisclosed conflict of interest as alleged by the SEC in this action. LaCroix also notes that these developments arise just as it appeared the long-running subprime and credit crisis-related litigation wave might be losing momentum Ã¢â‚¬“ a trend that he suggests could now reverse:
In light of popular and press reaction to the SECÃ¢â‚¬â„¢s allegations against Goldman, it is possible that these revelations in the Goldman complaint could revitalize the subprime litigation wave. Indeed, the SECÃ¢â‚¬â„¢s action may be only one of several recent developments that could reinforce a renewed interest in pursuing claims against Wall Street firms.”
Advisen recently reported that securities lawsuit filings fell by 39 percent in the first quarter of 2010, but cautioned that corporations and their directors and officers would be unwise to let their guards down given heightened regulatory enforcement activities and the fact that regulators have increased coordination of their efforts since the credit crisis.