*Reprint of report originally published in May 2008.

SECURITITES FRAUD CLASS ACTIONS:  

Deciding whether to "opt out" and go it alone

The Sherman Law Firm Finds that Aggrieved Shareholders Should Strongly Consider Opting Out of Securities Fraud Class Action Lawsuits.

Based on available data, state and federal statutes, and a well developed body of case law, The Sherman Law Firm recommends that current and former aggrieved shareholders of Wall Street financial institutions (i.e., Bear Stearns, Merrill Lynch, Bank of America, Citi, Lehman Brothers, Goldman Sachs)  and other large corporations strongly consider  "opting out" of any securities fraud class actions. On average, investors with large losses that choose to opt out stand to obtain far greater monetary recoveries than class members with comparable losses.

A.  Class Action Overview     

A class action is a special type of lawsuit in which a group of plaintiffs that share substantially similar legal claims against one or more defendants band together in a single lawsuit.

Class actions lawsuits are classified as “representative actions” because one or more plaintiffs are actually named in the complaint as representative(s) of the entire class of aggrieved individuals and/or entities (in this instance a class might consist of one or more categories of former Bear Stearns shareholders).

Investors must keep in mind that securities fraud class actions are frequently dismissed for failing to meet the strict pleading requirements of the Private Securities Litigation Act of 1995.

“Often being part of a class action lawsuit is not financially advantageous to an individual. Even though the defendant named in the case may be required to pay out a large sum of money, one individual who is part of the class action will only receive a small portion of that sum.”

A study published by NERA Economic Consulting (NERA) supported the statements of Lawsuitsearch.com. NERA reported that the average settlement recovery in securities class actions in 2006 was only 2.2% of investor losses.

B.  “Opt out” Cases: Overview                                                                   

Opt out cases receive have received little attention from the press to-date.   For this reason, it is not surprising that many Bear Stearns employees are unaware of the right to opt out of any class action litigation.

By opting out, shareholders elect not to be part of a class, not to be bound by rulings that affect the class, and not to be forced to accept any class action settlement.

Investors / shareholders that choose to opt out of securities fraud class action lawsuits generally hire their own lawyers and file their own independent claims against in an individual litigation.

Research reveals very clearly that opt out plaintiffs can and often do fare much better than the 2.2 percent average securities class action settlement in 2006.

A prominent opt out success story is the recent AOL Time Warner Class Action. In April 2007, Oakbridge Insurance Services wrote in its “Insights” report that AOL Time Warner opt-out plaintiffs reported recoveries that were between 6.5 and 50 times higher than amounts  plaintiffs received in the AOL class action settlement. Other sources indicated that the average AOL Time Warner opt-out investor recovered 20 times more than the average class action investor.

It is too early to tell whether the huge advantage for AOL Time Warner opt out plaintiffs will prove to be high or typical. Still, Oakbridge noted that, as a whole, the “the elevated percentage of investment loss recoveries in the opt-out cases” is a concern to class action defendants and to D&O insurers.

C.  Conclusion

Information in report is intended to illustrate the potential relative merits of class action litigation and opt out litigation for securities fraud plaintiffs. Based on statistical evidence from NERA and the outcomes of prominent securities class actions, our conclusion is that shareholders with substantial losses have a strong chance to recover a higher percentage of losses in individual opt out cases.

*All aggrieved investors should seek professional advice prior to selecting any course of action.

D.  Disclaimer

Because the report is largely statistically based, it does not take into account individual circumstances such as quality of counsel, and facts which may be unique to any institution or individual.

This report is solely for informational purposes. It is not legal advice.

Brett D. Sherman, Esq.

Managing Attorney

Phone: 201-723-9470
Fax: 646-395-1438
Twitter:@WallStLawBlog

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