Class Action vs. Individual Securities Fraud Cases

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Class action securities fraud cases generally involve a large publicly-traded company or corporation that is distorting or withholding information from a number of investors. When this results in significant loss for the investors, the plaintiffs in the case may be numerous, and damages must be paid out to all affected parties.

A recent study conducted by Stanford Law School discovered that financial sector companies were named as defendants in over 66% of the securities fraud class action cases filed in the first half of 2009.

Because class action cases are designed to recover financial compensation for a group of investors, individuals who participate in class action lawsuits usually only receive a small fraction of their total estimated damages. Class action securities fraud cases also take longer to resolve in court, sometimes not reaching settlements until three-and-a-half years after the cases were initially filed. This can make securities fraud class action lawsuits cumbersome and expensive for lawyers and plaintiffs alike.

A separate study by Cornerstone Research found that the average class action securities fraud settlement resulted in only three percent of estimated damages. For individual investors whose loss was small, participation in a class action lawsuit is typically worthwhile, since the cost of filing an individual claim would offset the amount of their recovered damages. But for individuals whose loss was significant, a securities arbitration claim is usually more expedient and beneficial.

When you invest with a brokerage firm, you are usually required to sign an agreement stating that any claims you make in the future against the firm or its agents must be settled in arbitration. Securities arbitration claims are filed with the Financial Industry Regulatory Authority (FINRA), an organization designed to resolve disputes between investors and their corresponding brokers. If you believe there has been a sales practice violation concerning your account as an investor, you can file a securities arbitration claim. This process – which can take anywhere from six months to a year to complete – is usually faster and more efficient than a class action lawsuit.

Arbitration differs from a lawsuit because your case is decided by a group of impartial arbitrators who have knowledge and experience with securities cases, whereas traditional lawsuits bring your case before a courtroom, where the outcome is decided by a judge or jury.