There could be a class action suit when a lot of different people combine their common grievances. It saves court time and helps a single judge to hear all the issues concurrently and to come to a resolution with both parties. If the court decides to recognize the case as a class action, all members of the class will have fair say and access to any monies or remedies the court orders.
In this sort of one person litigation, the court appoints a Lead Plaintiff to bring the case on behalf of Class members. An individual complainant, a group of individuals or other organizations-such as an investment fund-may serves as a lead complainant. The court usually appoints the class member with the greatest financial interest in the recovery the class wished to represent as the Lead Plaintiff.
Typically the Lead Plaintiff represents everyone who suffered similar harm from the unlawful actions of the defendant. Class action cases are also brought because it would be impossible or prohibitively costly for any person affected to file an individual case, allowing small shareholders or customers to pursue redress from large companies with much greater legal and financial resources.
In general, a securities class action lawsuit, or securities fraud class case, is brought before the Federal District Court by investors who bought or sold publicly traded shares of a corporation within a specified period of time (known as a “class period”) and sustained economic damage as a result of violations of securities law.
The Private Securities Litigation Reform Act (PSLRA) of 1995 was intended to rectify the widely held belief that the “merits” of a case did not matter in a securities class action lawsuit and the main aim of the law was to make the outcome of the case more dependent on the evidence of the misconduct and less on the avoidance of defense costs allowing institutional investors to participate in securities class actions as lead complainants shifting the balance of power between plaintiffs and class action attorneys by empowering victims with the greatest damages to gain ownership of the case.
The Class Period is a particular time frame during which the suspected illegal activity occurred. For example, in a securities class action case, anybody who owns the defendant company shares during the Class Period is a Class member and entitled to share in any settlement, if successful. Although the initial complaint specifies a certain Class Period, the Class Period can be extended to cover a longer duration.
The federal securities laws mandate that public notice be released within 20 days after a securities class action case has been filed, alerting investors that the complaint has been filed and that class members have 90 days to request an appointment from the court as the Lead Plaintiff. The Lead Plaintiff plays a vital role in choosing the court-appointed Lead Counsel in addition to representing the Class and is allowed to consult with Lead Counsel on the course of the litigation. By pursuing Lead Plaintiff status, and selecting professional, experienced counsel to represent the Class, an individual member of the class can dramatically affect the probability of success of the case and the size of any potential recovery.
To engage in the compensation, a loss would have been incurred by the overall investment in the stock during the class era. The affected person can at any time sell his stock and still participate in the recovery, as long as the overall investment has resulted in a loss.
Approximately 40 percent of securities fraud lawsuits involve the complainant, a public pension fund or a trade union fund lead.
Typical class action takes at least 2-3 years to proceed, although the actual time taken to settle a case varies depending on the complexity of the case, the issues raised and other factors raised.
Owing to large settlements, class action securities litigation has become a lucrative area, with Enron ($7.2 billion), WorldCom ($6.1 billion), Tyco International ($3.2 billion) and VEREIT ($1.1 billion) among the largest historic settlements.
Costs and costs of the case are typically handled by law firms working on behalf of the Plaintiff, there are companies who operate on a contingent fee basis, which means that they can ask the court to compensate them for their out-of-pocket expenditures and attorney’s fees— generally a proportion of the overall recovery— only if they win.