Plaintiff's lawyers are the latest victims of the bear market, complaining that while they normally prosper during bad times, lucrative cases now are few and far between.
Even a major industry scandal — the auction rate securities mess — hasn't produced the bevy of customer cases that some expected.
In fact, ARS cases, thought to be a gold mine of potential litigation last spring, have quickly wilted as the securities have been either redeemed by issuers or bought back by the major brokerage firms.
Tougher compliance and improved industry practices are other explanations for the decline in complaints, legal observers say.
"The industry has cleaned itself up," said Thomas Fehn, a partner at Fields Fehn & Sherwin in Los Angeles, which represents investors.
"Investor cases have gone the way of the dodo bird ... There aren't any," he said.
"We're just not seeing the good cases so much anymore," said Allan Fedor, a veteran plaintiff's lawyer in sole practice in Seminole, Fla.
"Cases suck," said another plaintiff's lawyer, who asked not to be identified. "This is the first downtrend I've seen during hard times" in the financial markets, this lawyer said.
In 2003, the number of arbitration cases filed at the Financial Industry Regulatory Authority Inc. of New York and Washington swelled to 8,945 following a severe market drop and the research analyst scandals. But since then, filings have dropped steadily to 3,238 last year.
Case filings this year have picked up due in part to ARS complaints, but activity overall remains low historically.
It's not just the plaintiff's bar that is hurting; business for defense lawyers also has slowed, they said.
"There's been a contracting of the ... legal work firms have been giving out" since the credit crisis unfolded, said David Barth-olomew, counsel at Palmer Lombardi & Donohue LLP in Los Angeles, which does legal work for the industry.
And by making settlements in the ARS cases, Wall Street has cut into work for defense firms, said Marc Dobin, founder of an eponymous law firm in Jupiter, Fla., who works the defense side.
Small law firms in particular are being forced out of the defense business because the major wirehouses want the perceived protection of using a big law firm, he said.
Plaintiff's and defense lawyers aren't alone in facing tough times.
According to a survey of 165 law firms by the Law Firm Group of Citi Private Bank, a unit of Citigroup Inc. of New York, a slowdown in demand for legal services is hitting hardest the top-tier law firms that serve the financial services sector.
Billable hours at these firms dropped 1.6% in the first half of the year, compared with a 1.1% rise at the other firms surveyed.
These law firms rely on securitizations and structured finance for business, Dan DiPietro, client head of the Law Firm Group, said in an article last month in the American Lawyer.
"But since the second half of 2007, the deal environment has languished," he said.
Some observers think the lull is temporary. In good times, lawyers worry that investor cases won't reappear, "but then the industry comes up with a new scam," said Laurence Schultz a partner at Driggers Schultz & Herbst PC in Troy, Mich., and president of the Public Investors Arbitration Bar Association of Norman, Okla., which represents plaintiff's attorneys.
PIABA's membership declined after the analyst scandal, and tech wreck cases cycled through, he said, "but now it's coming back." The group has been adding members for the past six months, to about 500 lawyers currently, Mr. Schultz said.
The full fallout from the downturn may take another year or so, said David Bellaire, general counsel for the Financial Services Institute Inc. of Atlanta, which represents independent-contractor firms.
It takes time for investors to realize they may have a problem and seek legal advice, he said. "We'll have to see if the drop in complaints was the result of good markets or quality of compliance," Mr. Bellaire said. But the industry has tightened up on supervision, he said, especially in sales to seniors.
Firms "are more sensitive to issues like producing managers," Mr. Dobin said. "And they've made investments in technology to aid supervision."
The industry has also done a better job of keeping clients diversified than in years past, Mr. Bartholomew said.
"You don't [see] huge concentrations of investments that fall off a cliff," he said. "The wirehouses really have moved in significant numbers to managed money."
Plaintiff's lawyers also said that the seamier side of the industry — boiler-room-type operations — hasn't reappeared as it has in years past.
"That party is over — those guys are gone," Mr. Fehn said.
But longer-term, securities law is still seen as a hot growth area.
Sweeps and other initiatives from regulators will continue, observers said.
Recently, for example, Finra and the SEC sent out detailed inquiries to firms about their sale of ARS.
"That keeps lawyers busy," said a defense attorney, who asked not to be identified.
Indeed, in a recent poll of 300 lawyers conducted by the staffing agency Robert Half Legal of Menlo Park, Calif., corporate and securities law were predicted to offer the most job opportunities for lawyers in the coming decade.
E-mail Dan Jamieson at email@example.com.