Opt Outs from Class Action Litigation
When securities firms or other financial institutions engage in misconduct on a large scale, the victims may number in the hundreds, thousands, or tens of thousands. The result may be that someone brings a class action lawsuit. But if you’ve suffered a significant financial loss, you should be wary of participating in a class action. You’ll almost always be far better off if you “opt out” of the class and pursue your own individual case.
At Hermann, Cahn & Schneider, our securities attorneys represent clients who opt out of class action litigation arising from the misconduct of financial professionals. If you think you might be a class member, we urge you to call us for details without delay. There are strict deadlines for opting out of a class action, and if you delay, you can find yourself stuck in the class against your will.
Why are we so negative about class actions? It’s simple. Class lawyers make a bundle, but the victims often receive next to nothing. In 2008, two economists from NERA Economic Consulting, a global financial consulting firm, published a report in which they compared class action securities fraud recoveries to the overall economic loss suffered by investors. The authors concluded that the ratio of median settlements to investor losses had stayed relatively steady in the 2-3% range over the past few years. In other words, the median recovery by a class member in a securities fraud class action is two or three pennies for each dollar of loss. The study also noted that this result had been consistent for the prior decade.
These findings simply confirm what we always tell our clients: class actions almost never result in meaningful individual recoveries. The total value of a class settlement may seem huge, but individual class members wind up receiving very little.
Furthermore, investors who pursue individual arbitrations or suits have a much easier and much quicker path to a final hearing or trial of their claims.
Securities class actions must always be brought in federal court, where plaintiffs face federal securities laws and procedural rules that are decidedly unfavorable to investors and where claims are tossed out unless pled with absurdly exacting detail. As the Fifth Circuit Court of Appeals noted in a 2009 decision, “To be successful, a securities class-action plaintiff must thread the eye of a needle made smaller and smaller over the years by judicial decree and congressional action.” On the other hand, an investor who opts out of the class can rely on less demanding pleading standards and can pursue more investor-friendly state law claims.
Individual securities arbitrations and state court lawsuits also generally move much faster and more efficiently than class-action cases. For instance, the average arbitration proceeding is completed in 14-18 months and settlement checks are received within weeks of settlement. In contrast, potential class actions begin at a crawl as lawyers wage an extensive certification battle, and if the class is certified, the case can remain pending for years before trial or settlement. Once it’s settled, a lengthy notification and approval process is required. Finally, settlement funds generally aren’t distributed for a year or more because thousands of claim applications must be mailed by, returned to, and reviewed by the claims administrator.
Obviously, it’s up to each victimized investor to decide how best to proceed. Some investors may simply be better suited by temperament or resources to put their losses aside or let class action lawyers determine what compensation is sufficient. But in our view, as long as the costs and fees of proceeding separately would not be prohibitive, an investor who has lost a substantial sum and is subject to a putative securities class action is well advised to bring a claim outside of the class.
If you’re involved in a class action and aren’t sure what to do, call us at (216) 781-5515 or toll free at (800) 789-2389. We’ll discuss your options with you at no cost. But don’t wait, or you might find your option to opt out has come and gone.