Business Magazine

Should Investors Opt-out of Securities Fraud Class Action Settlements?

Posted on the 22 November 2011 by Wallstlawblog @Wallstlawblog

By Brett Sherman



The road less taken:  

Opt-outs and securities fraud litigation... Why some individual investors may be better off going it alone in securities fraud litigation or arbitration.

We originally wrote this piece in May 2008.  While we have edited and updated the text, please note the following:
NERA has published more recent data that is NOT included in our post. However, NERA's updated statistics do not change our conclusions. Readers may review the most recent statistics by visiting the NERA website.

Based on research and experience, The Sherman Law Firm has concluded that any individual investor who-
(a) has suffered substantial stock losses, and

(b) is a class member in a securities fraud class action,
may ultimately recover a significantly higher percentage of the investor's stock losses by choosing to opt out of large class of anonymous plaintiffs. Thus, opting out of a class action and proceeding with individual claims in court or arbitration should receive careful consideration.
Class Actions
A class action is a special breed of lawsuit in which a group of plaintiffs that share substantially similar legal claims against one or more defendants band together in a single lawsuit.
Class actions are known as "representative actions," because one or more plaintiffs are actually named in the class action complaint. Along with their attorneys, these named plaintiffs pursue the case as representatives for the entire class.  Class members who are not named do not actively participate in the lawsuit.
Most class action claims settle. The end result, however, is that - after attorney fees and expenses are deducted from the settlement amount - there often is not much money distributed to individual class members.
In a 2006 post, wrote:

"Often being part of a class action lawsuit is not financially advantageous to an individual. Even though the defendant named in the case may be required to pay out a large sum of money, one individual who is part of the class action will only receive a small portion of that sum."

A study published by NERA Economic Consulting (NERA) supported the statement of NERA's report included the following, rather shocking, statistic:
The average settlement recovery in securities fraud class actions was only 2.2% of total investor stock losses.
-What does it mean to "Opt out"?-

Our own experiences at
The Sherman Law Firm and Wall Street Law Blog provide anecdotal evidence that many (if not most)investors who suffer stock losses do not even know that they are entitled to opt out of class action litigation.
A shareholder who chooses to opt out of a class action generally hires his or her own lawyer and proceeds against the company in an individual litigation.  Assuming the case has merit, any recovery is likely to be substantially more than two percent of investor losses.

This post is intended to compare the relative merits of class action litigation versus opt out litigation in securities fraud cases.
Based on our research and experience, we believe that shareholders with substantial losses have a dramatically better chance to recover a higher percentage of losses in individual opt out cases rather than as participants in class actions.
Disclaimer (we know, we know... But we are lawyers) -
Every case is different. This post does not take into account unique circumstances such as quality of counsel or facts which may be unique to any individual. This post is information, not legal advice. Class members should consult with an attorney to make an informed decision about whether to pursue claims as part of a class action or through individual litigation.
THE SHERMAN LAW FIRM represents individuals and entities in securities litigation, and readers should consider this post as an advertisement for attorney services.
The Sherman Law Firm, CLICK HERE to visit our website

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