Wall Street mess sends class-action investor lawsuits up 19%

— -- The worst bear market since the 1930s has left investors wanting to see Wall Street pay.

Investors filed 210 federal securities class-action lawsuits in 2008, up 19% from 176 in 2007, according to Stanford Law School's Securities Class Action Clearinghouse (SCAC) and Cornerstone Research. Plaintiffs claim they've been wronged out of up to $856 billion, up 27% from 2007 and the highest in six years.

Nearly half the year's litigation is connected with investors' losses resulting from the credit meltdown, because 97 lawsuits have to do with the subprime and credit debacle, and 103 name financial firms as defendants. Securities class-action lawsuits have never targeted financial services firms so heavily, says Stanford professor Joseph Grundfest.

"We're seeing a raft of cases flowing from the credit crunch, mainly against financial institutions," says Tom Dubbs at Labaton Sucharow, a law firm that represents investors in class-action lawsuits.

Investors' ire is clear, in that:

•Financial firms are facing historic litigation. A third of the financial companies in the Standard & Poor's 500 index, accounting for 55% of the industry's market value, are targeted in new lawsuits, says the SCAC. That compares with the 34% of utility companies subjected to new filings in 2002 after the implosion of Enron, and 15% of technology companies in 2001 during the dot-com crash.

•Claims of alleged losses are massive. Investors' alleged maximum losses of $856 billion are the largest since 2002, the SCAC says. A record 12 complaints claim losses of $5 billion or more. Most of the megasuits are targeted at financial firms, as the median alleged loss in credit crisis cases is $3.5 billion, well above the median $387 million in non-credit-crisis cases, says NERA Economic Consulting.

•Allegations are very specific. Many financial cases claim banks understated the amount of toxic assets they owned and overstated their value, Grundfest says. Others allege banks made loans to consumers who they knew couldn't afford them. Another 21 were connected to the sale of bonds called auction-rate securities, that left many investors unable to access their capital when the market for the bonds dried up last year.