Three Basic Types Of Securities Cases

Securities Fraud

Class Actions

Securities fraud cases allow an investor a means to recover losses caused by corporate fraud during an identified period of time. Securities fraud may include several types of accounting fraud or mismanagement.

 

Securities class actions are lawsuits filed on behalf of a group of investors who have suffered an economic loss as a result of corporate fraud or violations of U.S. securities regulations. Over the past few years, the number of foreign investors participating in U.S. securities class actions has increased dramatically.

 

As a class member, an investor can recover losses purchased within an identified class period. The class period outlines the period of time when the fraud artificially inflated the share price.

 

The lead plaintiff in a securities class action is a member of the class appointed by the court to represent the interests of the class. The lead plaintiff selects lead counsel and helps direct the course of the litigation. To determine the lead plaintiff, the court will evaluate who has the largest financial interest as well as the extent and nature of the fraud.

 

Opt-Out Cases
In some instances, an investor’s losses might be so significant or unique that staying in an already filed class action is not in their best interest. In those instances, an individual lawsuit can be filed on the investor’s behalf. These are called opt-out cases.

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Shareholder Derivative Cases

Shareholder derivative suits are brought against a corporation by current shareholders to restore shareholder value, establish better corporate governance and eliminate waste of corporate assets. In some cases, shareholder derivative actions also seek to recover economic losses suffered as a result of insider self-dealing, a conflict of interest and/or negligent management.

 

These cases are filed by shareholders on behalf of the corporation against an inside director of officer who holds a fiduciary obligation to maximize shareholder value for the company and shareholders. The shareholder must have owned shares during the time of wrongdoing.

 

Nearly all shareholder derivative suits involve improvements to corporate governance. These best practices serve to create more parallel interests between the shareholders and corporate management.

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Deal Cases (Mergers and Acquisitions)

Class action deal cases involve corporate executives who breach their duty to maximize shareholder value in connection with a corporate takeover or merger. When they put the company up for sale, they must ensure that both the share price and the process used to shop the company are fair and unbiased.

 

The plaintiffs in a deal case are investors that seek to increase the sale price, eliminate coercion and demand the full disclosure of key facts, including the state of the company and its compensation structure prior to the approval of the proposed transaction. A deal case may be filed against the seller or buyer, as well as the officers, directors and/or financial institutions involved in the merger or acquisition.

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Quick Overview

Securities Fraud
Securities fraud class actions and opt-out cases allow an investor a means to recover losses caused by corporate fraud during an identified period of time. Securities fraud may include several types of accounting fraud or mismanagement.

Shareholder Derivative Cases
Shareholder derivative lawsuits are brought by current shareholders against the directors and officers of the corporation for a breach of fiduciary duties that has damaged or posed risk to the value of a company's stock. Plaintiffs seek to improve corporate governance through various measures.

"Deal" Cases (Mergers and Acquisitions) 
Direct class action deal cases address the failure of corporate directors and officers to meet their fiduciary duty to maximize shareholder value during a merger or acquisition transaction. Plaintiffs seek to increase the deal price, force the disclosure of significant facts and assure fairness.