The midyear study also found a large decline in market capitalization losses related to all securities fraud class action lawsuits filed so far in 2006.

According to the study, the lower number of filings and lower market capitalization losses are reflected in decreases in total disclosure dollar loss (DDL) and lower maximum dollar loss (MDL)

The DDL decreased 55 percent on an annualized basis from $100 billion in 2005 to $22 billion ($45 billion on an annualized basis) in the first half of 2006.

The MDL decreased 44 percent on an annualized basis from $456 billion in 2005 to $127 billion ($255 billion on an annualized basis) in the first half of 2006.

“We're halfway through 2006 and already we're witnessing evidence consistent with a slowdown in the volume of federal class action litigation activity,” said Joseph Grundfest, Stanford law school professor and director of the Securities Class Action Clearinghouse and former commissioner of the Securities and Exchange Commission.

Mr. Grundfest commented in a statement, “While we lack the data necessary to determine the precise cause of the slowdown, the most intriguing hypothesis is that extensive and expensive corporate efforts to improve governance and accounting have reduced plaintiffs' ability to allege fraud.”

Dr. John Gould, vice president of Cornerstone Research and major contributor to the study, suggested caution in interpreting the recent slowdown in filings, saying, “Although there is no doubt that there has been a considerably lower level of filing activity over the last year, it is still too early to tell whether this represents a permanent shift.”

Despite the recent wave of public attention surrounding the Securities and Exchange Commission and Justice Department investigation of alleged backdating of stock options at more than sixty publicly traded companies, the impact has not been as large as some might expect, the survey found.

In fact, by June 30 only eight federal class actions were identified alleging illegal backdating behavior. They are Comverse Technology Inc.; Vitesse Semiconductor Corporation; UnitedHealth Group Inc.; American Tower Corporation; Brooks Automation Inc.; KLA-Tencor Corporation; Brocade Communication Systems Inc.; and Mercury Interactive Corporation.

Since the close of the report's sample period, two more issuers have been named in backdating class actions Juniper Networks Inc. and Rambus Inc., bringing the total number of backdating related class actions to 10.

Mr. Grundfest noted several reasons why class action complaints in backdating situations are not more common:

o Many disclosures relating to allegations of backdating are not accompanied by statistically significant stock price declines.

o The alleged options backdating activities occurred so long ago that the statute of limitations defense may be effective.

o In some situations, the uncertainties associated with the application of appropriate accounting principles may cause potential plaintiffs to recognize that they will have difficulty alleging that there was an intention to commit fraud.

o Most of the litigation is being filed in state court through derivative actions because these actions do not, as a practical matter, require significant stock drops as a basis for filing, and it may be easier to allege a violation of a fiduciary duty in many of these cases than to demonstrate a willful fraud.