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The Class Action Procedure in Securities Class Action Lawsuits
A securities class action lawsuit is a class action lawsuit filed on behalf of investors who suffered economic loss in a stock or security due to the defendant's misconduct. Defendants who engage in fraudulent stock manipulation, for example, or otherwise violate the federal securities laws, usually cause economic injuries to many people, not just one person. These people join together to seek redress as a group by filing a class action. The group consists of all investors who suffered financial loss because they purchased shares in a corporation during the period when the fraud occurred. If you were the victim of a securities scheme, your best bet for recovery is to find an attorney who specializes in securities class actions.
How the Class Action Works
As in class actions generally, the class action format allows individuals or small businesses who suffered losses due to securities violations to bring a case that might have been too expensive or inefficient to litigate individually.
This is particularly attractive if you are a small investor. Your loss was significant to you, but might not amount to much in the overall scheme of things. Let's say you bought 100 shares at $20 per share of stock in Acme Company. Acme Company's prospectus, it turns out, was full of fraudulent information, and it turns out your shares are only worth $10 per share. Your loss is valued at $1,000, which you want to recover. Very likely, it wouldn't be worth it to try to sue on your own, though. By the time you paid the case filing fee and a few hours of the attorney's time, your $1,000 would be gone. But what if there were thousands of shareholders in Acme Company who also lost $10 per share because of the same fraudulent prospectus? If all of you sue as a class, you effectively level the playing field against the more powerful corporation.
If your investment was relatively small, you are especially likely to benefit from the class action format. You effectively get to ride the coattails of those shareholders who suffered more significant losses.
Class Period
The period of time known as the "class period" is the time during which the alleged fraud or other securities law violation occurred.
If the defendant artificially inflated the price of the stock, the period that the price was inflated is the class period. If you purchased your shares during the class period, and you sustained a loss, you are automatically part of the class. Only those people or businesses who purchased stock during the class period may participate as class members in the class action lawsuit.
An experienced class action law firm makes the determination, after extensively investigating the defendant's course of action, as to what constitutes the class period. Sometimes, as the case progresses, the class period changes based on information the attorneys obtain.
Class Formation
The class action attorney you choose will publish a notice of the claim and the class that has been formed. Publication may be in a newspaper or magazine that will likely reach all potential class members, or notices may be sent directly to those who are believed to have been injured.
Every person wishing to be part of the class must prove that he or she meets the criteria of class membership. In a securities class action, individuals or small businesses must show ownership of the stock, including when the stock was purchased and for how much. Confirmation slips or brokerage statements are usually sufficient.
After the class is formed, the case proceeds much like a typical individual lawsuit.
Conclusion
At its onset, a securities class action, like other class action lawsuits, requires some particularized procedures unique to the class action format. Class action attorneys stay abreast of the class action procedural requirements.
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