We hear this question a lot and so decided to provide some answers to a few of our most frequently asked questions relating to class action lawsuits.

What is a securities fraud class action?

A securities fraud class action is a lawsuit filed by investors who bought a company’s stock within a specific period of time (known as a “class period”) and suffered economic injury as a result of violations of the securities laws. A securities fraud class action allows stockholders who would never bring an individual action to seek recovery from the wrongdoers without having to individually retain a lawyer and pay legal fees. This is a critical tool that allows shareholders to activate their litigation rights to protect their financial interests when corporate executives harm their investment.

How do I join a class action?

Many law firms encourage shareholders to "join" the class action. This can be misleading as you do not have to take any affirmative action to be a class member. If you purchased your shares during the class period – whether you still own those shares or not – you are automatically a member of the class on whose behalf the case is being brought.  

If a class action results in a settlement, all shareholders will be notified. At that time, shareholders can choose whether to remain a part of the class or to opt-out. One of the main reasons shareholders choose to opt-out is because their losses are so great they would be better off filing their own lawsuit to receive a larger settlement. This option is not available to most shareholders, so if you are a class member it is generally recommended to remain in the case. If you ever incur significant losses due to corporate misconduct and have any questions about pursuing your own lawsuit, seek the advice of counsel.

Do I have to participate in the settlement?

As a class member, you have the option of participating in the settlement. Participation typically includes filling out a claim form and submitting supporting documentation to the claims administrator. If you do not have the necessary documentation, or for some other reason do not want to participate, you can choose not to. However, because securities class action settlements are issued on a pro rata basis, the amount each shareholder receives will be based on the number of settlement claims submitted. The fewer the claims submitted, the greater the amount you will receive. If you have the time and the documentation, you should submit a claim form to recoup any proceeds available to compensate you for your loss.

If you previously opted out of the settlement, you may not submit a claim. If you disagree with the terms of the settlement, you can file a motion objecting to the settlement.

What is the process for participating in a settlement?

After the parties agree on the terms of the settlement, notice will be distributed to all known shareholders. To participate in the settlement, you must complete the claim form and submit all necessary supporting documents. If the claims administrator has questions regarding the claim, or identifies that any information is missing, the administrator will reach out. If you do not hear from the administrator, you simply wait until the claims have been resolved. Note that this process usually takes a year as there are algorithms and analysis that must be computed to evaluate each shareholders' claim and determine their share. Once the claims are resolved, the administrator will mail you a check, make a direct deposit to your account, or issue your proceeds via Venmo.

What are the largest securities class action settlements?

Enron Corp.: The largest securities settlement is the $7.2 billion settlement against Enron Corp. In that case, shareholders who submitted claim forms received at least $6.79 per share of common stock and $168.50 per share of preferred stock purchased during the class period.

WorldCom: $6.1 billion settlement

Tyco International: $3.2 billion settlement

Cendant Corporation: $3.8 billion settlement

Petróleo Brasileiro S.A. – Petrobras ADRS: $3 billion settlement

But don’t get caught up in the numbers. While these cases generated large settlements, they were brought on behalf of a large class of shareholders who each had the opportunity to share in the settlement. Sometimes, seemingly smaller settlements generate better payouts for shareholders as the number of shareholders participating in the settlement is smaller with less hands in the pot.

How do I determine if my stock is the subject of a securities class action?

If you notice a drop in the price of your stock that does not appear to have resulted from normal market fluctuations, contact Robbins LLP. We will first determine if there is a pending class action against the company. If not, we will investigate the company and evaluate the reasons behind the decline. If we suspect egregious conduct, we will advise you on next steps to hold the corporation and its executive accountable for the harm they caused.

The information provided here is for general purposes and should not be considered as legal, financial, or investment advice.