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Published On: November 2, 2014Categories: Fraud

Class Action Notice and Value of “Opt out” of Securities Class Actions and Derivative Actions

When Investors Should Consider Becoming an “Opt Out” Of a Shareholder Class Action: A 300% to 400% Proposition

…You Know That “Securities Class Action Settlement Notice” That You Received?

If you are on this page chances are you received a letter or pamphlet or post-card that tells you a class action has been certified by some federal court somewhere in a securities dispute, and you might be an absent class member.

You have three options: 

(1) Stay in as an absent class member.

(2) Opt-out and do nothing (in which case you’ll get nothing)

(3) Opt-out and file your own lawsuit.

To the uninitiated, a class action is merely a mechanism where the court tells the parties that the one or two shareholders who sued claiming they were injured because of the fraud or lie that the defendant allegedly engaged in, they will represent everyone who was injured in the same fashion due to the same conduct. Either everybody was injured, or nobody was injured. That is how class actions work. Before you can have a class action, the plaintiffs have to show the court that indeed the representative shareholders stand in the same shoes as all shareholders.

The notice you receive is to let you know that the test was met. But you have the option of letting the court know that you object to their being a class action or you want to be out of the class action.

Sometimes the notice is of a class-wide settlement of a class action. Same as before, except now the issue–the only issue–is whether you believe that the compensation you are likely to receive is sufficient for you, or whether you believe you could do better on your own. The notice is to tell when and how to make that decision.

Absent Class Members Tend to Get Pennies on the Dollar, Opt Outs Who Bring Their Own Lawsuits Can Fare Much Better

The trouble with many securities class actions is that they settle for between 8% and 12% of the value of the alleged losses, and then after costs and attorneys fees, the average class members gets about 4% to 5% (and sometimes as little as 3%). Stanford University has tracked these statistics fairly closely (Here).

How much or how little you’ll get depends on a variety of factors:

…how much money is left,

…how many people are making claims,

…and most importantly, what formula are they using to calculate your damages.

Often the parties will not agree on what the appropriate formula is, and quite often the formula for calculating the least amount of injury is the one used because it is the most conservative (what the defendant wants) and it allows them to pay claims and say they paid a larger percentage of the losses (what the plaintiff wants).

The Virtues of “Opting Out” of a Class Action and Filing Your Own Case: The Numbers Don’t Lie

Our own experience with opt-outs and several other studies shows that if you’re losses were great enough, opting out may be the right move for you.

A Columbia University study found that securities class action and other shareholder class action opt-out plaintiffs received as much 300% to 400%what they would have received had they remained as absent class members (Download).

Our own experience has been similar (in fact, several of the matters cited in the CLS study were cases we were involved in).

Need More Information or Consultation to Decide The Best Route for You?

It is not an easy decision before you. But if you would like to discuss your case and your options, please do not hesitate to contact our firm at (214) 432-2899.

You will have no obligation to opt-out, or file a suit unless you decide that it is in your best legal and financial interest to do so.