Typical Misunderstandings
Typical misunderstandings about the active involvement in loss recovery
1) It does not concern me, because I don’t buy US securities
FALSE - Even non-US securities (i.e. foreign-listed companies or dual-listed securities of US companies) can be covered under US securities laws and therefore are subject to enforcement in the US (examples are Royal Ahold, Parmalat, Daimler Chrysler). About 80% of all US cases also involve securities on Non-US stock exchanges. Moreover, about 15% of all cases are filed against Non-US companies.
2) It does not concern me, because I am a Non-US investor
FALSE - Even foreign purchasers can have claims for securities fraud in the US and should take active roles to protect the special interests of the foreign investor class.
3) It is not worth it
FALSE - $5-10 billion per year is a big number and institutional investors recoup large amounts thereof.
4) Active involvement takes too much time
FALSE - Neither lead plaintiffs nor opt-out/private plaintiffs spend more than 1-2 days per year on any given case.
5) There is always the risk of fees or costs
FALSE - There is no realistic risk for fees or costs if you work with reputable and competent lawyers. The lawyers assume this risk and under U.S. laws each party normally pays its own attorney’s fees and costs. There are also no real court costs involved.
6) Why get involved, if I can just sit back and wait
FALSE - Nobody is better suited to protect your investment than you yourself! In many situations an involvement makes sense to protect one’s own interest. Only the lead plaintiff can have an influence on the plan of allocation (the formula which determines who receives how much per share at the end), on keeping the foreign purchaser group inside of the class action, or on making sure certain securities or defendants are included.
7) I don’t need to do anything
FALSE - Over 65% of all institutional investors have this opinion, leaving only about 35% of them with a system to claim losses through the claims administration process. In some years, over $1 billion in settlement funds were not claimed by all claimants with potential entitlements. Moreover, there is a fiduciary duty of asset managers to monitor and inform investors or to act on behalf of investors in collective investment vehicles.
8) Securities litigation is just extortion and damaging the companies I am investing in
FALSE - Statistically, stock prices do not decline significantly after lawsuits are filed. They have stabilized after the fraud is uncovered and the markets have reacted. However, stock prices usually rise after a settlement is announced. Overall, the repayment to investors far outweighs any economic loss attributed to any stock price reaction. While about 30-35% of all cases in the US are dismissed of legal insufficiencies or a lack of fraud, over 95% of the remaining cases (i.e. 100/year), result in positive settlements for the investors.
9) Class actions are lawyer-driven
FALSE - The lawsuits are filed for the benefit of the overall class (i.e. all of the US and non-US investors in most situations), and nobody can argue with the benefit of about $5-10 billion of refunds per year to investors, who were defrauded and , as a result, overpaid for the affected securities.
10) Lawyers get 50% in fees
FALSE - This is not a personal injury type situation. Lawyers get paid appropriate fees as determined by the courts in class actions at the end of the case and in proportion to their involvement and efforts. In private actions, fees are determined freely between the parties, but are nowhere near this number.
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