A more aggressive approach by US regulators and prosecutors towards combating corporate fraud pushed the number of securities class actions to a 10-year low in 2006, according to research.

Investors launched 110 class action lawsuits alleging securities fraud in 2006, a 38 per cent slump from the 178 filings in 2005, a joint study from Stanford Law School and Cornerstone Research said.

The 2006 figure is the lowest full-year number since the US passed the Public Securities Litigation Reform Act in 1995, a major piece of legislation aimed at reducing the number securities lawsuits filed.

The US Securities and Exchange Commission, the chief securities regulator, and the Department of Justice, the main US prosecution agency, have intensified their efforts to combat fraud in recent years. In particular, both agencies have been pushing companies to conduct investigations that identify the individuals responsible for frauds who can then be prosecuted; a tactic that the study said "may be reducing the amount of fraud in the market."

Joseph Grundfest, a professor at Stanford Law School, said: "My bet is that the private securities fraud litigation market is shrinking because corporations are engaging in less activity that gives plaintiffs an excuse to file a complaint alleging fraud."

"The federal government is a much more aggressive adversary than the private bar, and the feds can force a level of compliance that private class action lawyers could never touch. I think we are seeing the effects of a tougher and smarter campaign against white collar fraud by the SEC and Department of Justice."

The Stanford study also attributed the decline in class actions to rising and less volatile stock markets. Sharp falls in stock prices are often the catalyst for shareholders to begin investigating a securities fraud lawsuit.

Last year’s decline in the number of class actions came in spite of a new wave of lawsuits relating to options backdating at several top US companies. So far, 20 class actions have been filed relating to alleged stock option manipulation, where it is claimed that companies awarded senior employees the right to buy shares at a highly favourable price in contravention of US securities law.

Responding to the figures, the US Chamber of Commerce said the decline was in part due to the ongoing prosecution against Milberg Weiss Bershad & Schulman, once America’s most successful class action law firm. The firm, which denies all charges, was indicted along with two of its partners in May charged with paying illegal kickbacks to investors to encourage them to launch lawsuits.

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