Securities Class Action Lawsuits Don’t Help Investors Recover, Says New Study

According to a study commissioned by the US Chamber Institute for Legal Reform, securities class action lawsuits are not a help to investors seeking to recover their investment losses. The study, which was released by Navigant Consulting, found that class action litigation costs investors close to $39 billion annually even as they recover only about $5 billion.

To arrive at the finding, the authors of the calculated the wealth lost by shareholders when lawsuits were announced right after a class period had ended. Usually, at this point, the class members consisted largely of the same shareholders who experienced the first drop. Per the study, a significant percentage of proceeds from the settlement was given to plaintiffs who almost always would not have recovered anything if a securities case was litigated. However, said the authors, after looking at 50 allocation plans for large settlement, they discovered that when redistribution of the wealth happens it hardly resembles the alleged injury. Instead, an analysis of more than 14,000 class action securities cases from 1996 to now showed, shareholders who were alleged fraud victims and the plaintiffs of these claims sustained “an incremental wealth loss” of over $262 billion because class action securities cases were filed.

In a report also issued last month based on its own study, consumer advocacy group Public Citizen found that it is private securities lawsuits that are effective when it comes to deterring fraud. Lisa Golber, the co-author of the study. said that institutional investors widely see these cases as a way to keep up their investments’ sustainability. The report found that private securities fraud cases compensate investors and do what the SEC sometimes can’t because of its lack of resources.

Our securities fraud lawyers represent investors with private securities lawsuits and securities arbitration claims. Submitting a private securities claim increases your chances of getting back the maximum recovery you are owed. Contact The SSEK Partners Group today.

Study says securities class actions actually harm investors, Legal Newsline, February 28, 2014

U.S. Chamber Institute for Legal Reform

Economic Consequences: The Real Costs of U.S. Securities Class Action Litigation

Public Citizen’s Study (PDF)

More Blog Posts:
US Supreme Court Considers Whether to Limit Securities Fraud Lawsuits, Institutional Investor Securities Blog, March 5, 2014

Supreme Court to Hear Texas-Based Halliburton’s Class Action Securities Fraud Case Again, Stockbroker Fraud Case, November 18, 2013

Texas Judge Throws Out Verizon Retirees’ Class Action Lawsuit Over $8.4B Pension Sales to Prudential, Stockbroker Fraud Blog, July 9, 2013