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What is a Securities Class Action?

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  • Written By: A. Leverkuhn
  • Edited By: Andrew Jones
  • Last Modified Date: 02 November 2016
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A securities class action lawsuit is litigation brought against the company by a group of investors who were shareholders at a given time. The plaintiffs in a securities class action lawsuit generally claim to have suffered financial losses in a specific time frame called a “class period.” The basis of this type of class action case is often related to charges of stock manipulation or fraudulent reporting, or anything else that is improper and negatively affects the price of a stock.

Many of these kinds of class action cases are brought by specific individual investors designated as “lead plaintiffs.” Although some of the other investors who were involved in holding company stock during the class period may not be actively involved in the court process, they will generally be part of the settlement as long as they registered appropriately during the correct time frame. The lead plaintiffs are usually represented by professional class action attorneys who receive fees as part of the settlement.

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Since securities class action lawsuits rely on a foundation of financial fraud charges, they will often be subject to the nation in which the litigation is brought. For example, in the United States, the Securities and Exchange Commission, or SEC, governs financial law related to the U.S. stock market. Other nations, for example, European nations, have their own regulating agencies to monitor a “bourse,” or national stock exchange or market. In complex class action cases, multinationals defend themselves against a group of investors in a specific “host country” where that nation’s legal system governs the trial and eventual settlement or outcome.

Some financial experts in various countries are charging that securities class action lawsuits tend to weigh down a financial market. They point to the taking of fees by prosecuting attorneys, and the net financial exchange that leaves prior investors with money that has to be taken out of the company’s market capitalization, or otherwise affects its immediate revenues. These critics charge that an excess of these class action lawsuits can “erode” an economy by bleeding money from companies.

Anyone involved in a securities class action lawsuit should pursue some thorough research about what constitutes securities fraud and what kinds of situations generally result in securities cases that are upheld in court. Not every dramatic stock loss can qualify as a stock manipulation, and the process of successfully executing credible class action cases for investors can be difficult. A prevailing sentiment in many areas of finance is that investors take their chances and experience stock gain or loss fairly. In some situations, though, a realistic securities class action lawsuit will effectively establish fraud or market manipulation by the top brass of a company.

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