Large Firm Sophistication – Small Firm Values

Andre Springer

Class Action FAQ

What Is A Securities Class Action?

A securities class action lawsuit is an action that permits a person or entity to commence a lawsuit on behalf of other individuals or entities that are similarly situated.  Lawsuits of this type are usually brought when hundreds and even thousands of people have suffered similar injuries as a result of wrongful conduct.

The primary benefit of a securities class action is to encourage investors or institutional investors who may have sustained rather small loses, which otherwise would not justify retaining an attorney, to bring a claim for the benefit of absent class members.  

Securities class actions are a specific type of class action that is brought to recover monetary damages suffered by purchasers of securities and/or debt securities as a result of the company or its management acting improperly either by misrepresenting certain information to shareholders or omitting material information to shareholders.

Information that is typically misrepresented includes the financial performance of the company or certain aspect of their business that would cause the company’s stock price to be inflated or deflated based on the information concealed.  

Are There Different Types of Securities Class Actions?

Yes.  The most popular type of securities class actions are cases filed under the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and SEC Rule 10b-5.  

Another type of securities class actions is an action arising under state law called a “derivative class action.”  In a derivative class action, a shareholder initiates a class action on behalf of the corporation against a third party (often an insider) for harms suffered by the corporation.  Traditionally, under state corporate law, management and the board of directors are responsible for initiating lawsuits on behalf of the corporation.  Derivative lawsuits, however, allow a shareholder to commence an action when management or the board of directors fails to bring a lawsuit on behalf of the corporation.

A third type of securities class actions is a class action arising from the announcement of a merger or acquisition (“M&A”) by a public company.  In a M&A class action, a shareholder usually alleges that the board of directors breached its fiduciary duty to shareholders.  In many M&A class actions, shareholder plaintiffs challenge the terms of the merger, the process employed by the board of directors in reaching the Agreement and Plan of Merger (the “Merger Agreement”), and the board’s disclosures regarding the merger.  M&A class actions tend to arise under state law, but occasionally are brought under Sections 14(a) and 20(a) of the Exchange Act.  

What Are The Advantages Of Securities Class Actions?

By contrast to individual actions, securities class actions allow shareholders an equal opportunity to prosecute their rights against a corporation, the board of directors, and management who are typically armed with significant resources to defend such lawsuits.

What Is A Lead Plaintiff?

In every securities class action, the court will appoint a Lead Plaintiff.  A Lead Plaintiff is a person, entity, or group of persons and/or entities appointed by the court to represent the interests of all proposed class members.  Usually, but not always, the Lead Plaintiff has suffered the largest economic loss.  Lead Plaintiff, in conjunction with Lead counsel (also appointed by the court), work in tandem to prosecute the case towards recovery or settlement.  

What Will It Cost Me To Participate In A Class Action?

As a client of our Firm there will be no incurred costs or attorneys’ fees charged to you.  

What Is A “Class Period”?

The class period is the time frame during which the corporate actors are alleged to have been engaged in the misconduct.  The pleading and/or Private Securities Litigation Reform Act (“PSLRA”) notice typically defines the class period.  Once the case begins, new facts may lengthen or shorten the class period.  

Can I Become A Plaintiff If I Held Shares Outside Of The Class Period?

No.  If a plaintiff purchased or sold securities outside of the Class period, their claims will not be subject to the class action.  However, as mentioned above, if the Class Period is extended through the discovery of new facts or otherwise, then securities purchased outside of the original Class Period may be subject to the class action.

Will I Be Able To Recover If I Sold My Shares Before Or During A Securities Class Action?

Yes.  In the event you purchased securities during the Class Period and incurred a loss as a result of the proven fraud or misconduct, you have the right to recover your losses even if you sold your stock before the start of a securities class action.  

Must I Hold Onto My Shares To Participate In A Class Action?

Maybe.  The general rule for federal securities class actions (based on federal law) is that you do not need to hold the security in order to participate in a class action or in a class action settlement.  In the event you do sell your security within the first 90 days following the corrective disclosure, your damages will be capped at the difference between the price at which you purchased the security and the price at which you sold it.

In derivative class actions, a plaintiff must hold onto their shares through the entire litigation. If a plaintiff sells his or her respective stock in its entirety, the case will be dismissed.

In merger and acquisition class actions, to maintain standing, the shareholder must at least retain one share of the selling company’s stock to maintain the action.

Do I Need To Be A United States Citizen To Bring A Securities Class Action?

No.  As long as the individual or entity acquired the securities during the class period then the individual or entity can still bring a claim and apply for Lead Plaintiff status.

How Long Does A Securities Class Action Take To Litigate?

While our Firm believes that each case has its own story to tell, the typical duration for a federal securities class action and shareholder derivative class action typically range from two (2) to (4) four years.  M&A security class actions typically take one (1) to two (2) years to fully litigate. As mentioned in our approach, we actively prosecute cases and always prepare each case for trial to maximize our client’s and the shareholder class’ recovery.   

Why Is There More Than One Law Firm Involved?

Because shareholders retain many different law firms to prosecute similar cases.  When several related cases are filed, the court will consolidate those cases into a single consolidated action and appoint a Lead Plaintiff(s) and Lead Counsel.