Securities fraud class actions are lawsuits filed by investors who have purchased a company’s securities at artificially inflated prices as a result of the public dissemination of false and misleading statements by company insiders. These lawsuits aim to recover financial losses caused by these manipulative and deceptive practices.
In a class action, one or more plaintiffs represent a larger group of affected investors, making legal action more efficient and cost-effective. Successful claims can result in financial compensation for the investors and a financial reckoning for the offending parties.
Common allegations in securities fraud class actions
The claims involving securities and investment will vary, but these crop up most often:
- False financial statements: Companies may provide inaccurate or misleading financial information to make their financial condition appear better than it actually is.
- Insider trading: Executives or other insiders might trade a company’s securities based on non-public, material information, benefiting themselves at the expense of the investing public.
- Misleading earnings forecasts: Companies may issue overly optimistic forecasts to inflate stock prices, only to revise them later, causing significant losses.
- Omission of material information: Failing to disclose crucial details that would affect an investor’s decision to buy or sell securities.
- Market manipulation: Engaging in activities designed to artificially inflate or deflate the price of securities, misleading investors about the true market value.
How investors get involved
Investors can join a securities fraud class action in several ways. Initially, the investors who commence the class action lawsuit will issue one or more press releases notifying the affected group of shareholders of their right to seek appointment by the court as the lead plaintiff. The lead plaintiff is the investor or group of investors that have the largest financial interest in the case (i.e., the biggest loser). This notice provides details about the lawsuit, including the allegations and the time frame during which the fraudulent activities allegedly occurred.
Investors can choose to remain part of the class, which means they do not need to take any action but will benefit from any settlement or judgment. Alternatively, they can opt-out if they wish to pursue individual legal action in hopes of obtaining a larger recovery of their losses. Law firms specializing in securities litigation often represent the plaintiffs on a contingency basis, meaning they only get paid if the case is successful. Investors might also join the class action by contacting these law firms directly if they believe they have been affected by the alleged fraud.
Outcomes of successful claims
Successful securities fraud class actions can lead to significant financial compensation for misled investors. If the court favors the plaintiffs, the offending company or its executives may be required to pay damages, which are typically distributed among the affected investors based on the extent of their losses.
Need to learn more?
The circumstances of each class action are different. Investors interested in weighing their options or having other concerns about the lawsuit can gain further insight by talking to a lawyer who handles class actions.