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What is a Securities Class Action Lawsuit?

A Brief Overview

Corporate investors may file class action securities lawsuit, which is a type of class action because of securities having been fraudulently dealt with; fraudulent practices can occur in the buying and selling of stocks. All claims can be consolidated into one legal action.

There are common claims when it comes to securities class action lawsuits. A fraud or deceit claim says the defendant was fraudulent when the buying or selling of securities was taking place. Data reporting was falsified, either by leaving out or adding in information.

Poor governance or insider trading claims are also common. Poor governance claims say that a company didn’t do enough to prevent fraud or similar misdoings from occurring.

An example of an insider trading claim would be to say that employees of a company bought and sold stocks while having information not known to the public.

Securities class action lawsuits are known for requiring lots of research by attorneys, more than normal individual lawsuits. Lawyers need to have the proper experience and training to get involved in one.

The Process

Usually, class action lawsuits are filed when individuals forming a group, or class, have experienced similar losses. Though individual losses may have been small, they add up to be a very big amount.

In that case, it’s more efficient to file a class action lawsuit instead of separate lawsuits. It’s filled with a representative plaintiff, otherwise known as a “lead plaintiff” or “named plaintiff.”

A hired attorney will usually try to figure out the “class period,” which is the period of time in which a violation happened.

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For instance, if a company was reporting data fraudulently over the course of one year, the class period would be labeled as that one year. And then, anybody who bought stock during the class period can be a class member.

Every individual involved is entitled to receive some kind of notice that action has begun. The court will require the class representative, the person who represents the rest of the class, to make any unknown members of the class know what’s going on; the type of notice may be different in every case.

Every person can then either “opt in,” or take part in the action, or “opt out,” meaning the individual doesn’t take part. Sometimes, opting out is not a choice. Class members usually aren’t too involved in the lawsuit; the work is mostly left to the attorneys.

The Outcome

The lawsuit can take care of lots of claims all at once. If the defendant wins the case, class members can’t file any more cases, even individual ones, regarding the same issue and the same defendant.

However, if the defendant loses, he has to pay the plaintiffs for their losses, which is divided amongst themselves. Winning a securities class action lawsuit ensures that each plaintiff receives at least some kind of redress.

The court decision is for all class members of the case. Sometimes, lawyers will perform scrupulous overviews of each plaintiff’s claim, in order to fit the payment to the claim. This usually doesn’t occur in bigger lawsuits.

The fact is that most securities class action lawsuits are dismissed, because companies would rather settle than spend lots of money on trials. The amount can be millions of dollars, or even more than a billion dollars.

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Finally, fees need to be paid to the attorneys. The cost of litigation can be high, since it can include preparing for the lawsuit and anything that came up during the trial.