Investor lawsuits spurred by the U.S. subprime crisis likely will spread beyond the financial and housing sectors, as more companies reveal writedowns linked to bad mortgage investments, a shareholder lawyer said on Tuesday.
Already, institutional investors have brought securities fraud class-action cases against lenders and banks related to their subprime mortgage businesses.
Now, more big investors are looking at potential claims against other kinds of companies that made their own forays into subprime-linked investments, said Salvatore Graziano, a partner at law firm Bernstein Litowitz Berger & Grossmann LLP.
“We expect non-real estate companies to start being impacted by this,” Graziano said at the Reuters Housing Summit in New York.
He said his firm, which recently formed a subprime litigation task force aimed at representing investors, has “already gotten a number of inquiries from clients” who are “suffering losses from investments they thought were very safe.”
Last month, drugmaker Bristol Myers Squibb Co (BMY.N: Quote, Profile, Research) became one of the first companies outside the financial sector to disclose exposure to subprime mortgage investments, announcing a $275 million write-down from so-called auction-rate securities linked to risky mortgage loans. The securities are often pitched to investors as safe alternatives to cash.
Shareholders could potentially bring legal claims against companies that take these kind of writedowns if the assets were not properly valued, Graziano said. He said it’s likely that more companies will be forced to reveal similar writedowns this year as their accountants scrutinize asset valuations.
“What Bristol Myers did puts a lot of pressure on the auditors for the other companies,” he said. “That’s why I expect a lot more in the coming quarters.”