Fewer lawsuits charge securities fraud

— -- Once-thriving securities-fraud lawsuits, hailed by shareholders and bashed by businesses, are facing an onslaught of legal challenges that could cripple the controversial class actions.

The number of federal securities-fraud lawsuits is steadily falling. Businesses are stepping up their assault on what they call frivolous litigation. Government investigations are chilling plaintiff's attorneys. And Tuesday, the U.S. Supreme Court will hear arguments in a hotly debated case that may greatly narrow the scope of such lawsuits.

The legal climate has gotten so dicey that some securities-fraud attorneys are seeking new revenue and pursuing litigation in antitrust, consumer products, subprime mortgages, employee pension plans and other areas, says James Cox, a law professor and securities-fraud expert at Duke University.

"It's getting harder for plaintiffs' attorneys to make a living," Cox says.

In the past decade or two, shareholders' attorneys — representing public pension funds and other institutional investors — have sued hundreds of companies such as Enron, Tyco and WorldCom for accounting fraud, collecting billions of dollars in settlements and legal fees.

But the heady era of securities-fraud class actions clearly has passed, according to attorneys and law professors. Among the key developments weakening the lawsuits:

•Legal wins for businesses. Since the 1930s, Congress and the courts have strengthened shareholders' rights in securities-fraud lawsuits, says Mercer Bullard, a former SEC assistant general counsel now a University of Mississippi law professor.

In recent years, though, conservative judges have ruled against shareholders in key cases while siding with businesses. Bullard expects more of the same from the Supreme Court in StoneRidge Investment v. Scientific-Atlanta, the most important securities-fraud case in decades.

"I'd put my money on Wall Street winning this one," Bullard says.

The StoneRidge case could determine if shareholders can sue a company's auditors, lawyers and other third parties who know about securities fraud allegedly committed by the company.