Frequently Asked Questions

Below are the some frequently asked questions regarding securities class actions:

What is a class action?
Why are securities class actions initiated?
What is a lead plaintiff?
Does a class action cost you anything?
Do you need to do anything when a case is initiated to participate in a class action?
What are the advantages of being a lead plaintiff?
What are the obligations of a lead plaintiff?
What are the typical stages for a securities class action?
How much will you receive?

1. What is a class action?
A class action is a lawsuit brought on behalf of many people who have been harmed in a similar manner. Class actions may be especially useful for people with relatively small economic losses that would not justify the hiring of a lawyer to pursue only their own claim. A class action cannot be prosecuted unless at least one person harmed by the conduct decides to act as a class representative.

2. Why are securities class actions initiated?
Securities class actions are typically initiated in order to recover for damages suffered by investors when a corporation or its management has misrepresented (or failed to disclose) important facts about the business or financial condition of the corporation which probably had the effect of making the price of the security higher than it would otherwise have been.

3. What is a lead plaintiff?
A “lead plaintiff” in a securities class action is a class member appointed by the Court to act as the representative of the class to pursue the litigation. The Court will select one or more class members to serve as the "lead plaintiff.”

4. Does a class action cost you anything?
If we are successful in recovering money for the class, we will request that the court award us a portion of that recovery as compensation for our efforts. If we are unsuccessful in recovering money for the class, you pay nothing and we receive nothing.

5. Do you need to do anything when a case is initiated to participate in a class action?
No. At the outset of the case, all persons who purchased securities during the period of the misrepresentations (the “Class Period”) are automatically covered in the proposed class. If money is later recovered through a settlement or a trial, you will be required to file a claim form to recover your portion of that money.

6. What are the advantages of being a lead plaintiff?
If you are appointed as a lead plaintiff, you will communicate with the lawyers about the progress of the case and have the right to control the lawyers and thereby influence the outcome of the case.

7. What are the obligations of a lead plaintiff?
As a lead plaintiff in a securities class action, you must be willing to testify at a deposition and at trial, if necessary. In addition, you should be willing to consult with the attorneys about the progress of the litigation and important decisions.

8. What are the typical stages for a securities class action?

• Approval of lead plaintiffs and lead counsel - within 60 days of the notice of the first securities class action against a company, any class member may seek to be appointed by the court as the "lead plaintiff" and may seek court approval to have his or her attorney appointed as "lead counsel." If more than one person applies to be "lead plaintiff," the Court decides who will serve. Generally the most adequate lead plaintiff is the one who has suffered the largest loss, but the court will often appoint multiple lead plaintiffs who have the largest aggregate loss, thereby opening up the lead plaintiff motion to all class members. Although for ease of management, it is likely that the official lead plaintiffs appointed by the court will be limited to 3-5 persons with large losses, it is also in the interest of the plaintiffs to file a motion for appointment of lead plaintiff on behalf of many class members, including those with a smaller loss, because the defendants will be less likely to challenge - and much less likely to succeed in challenging - the certification of the case as a class action.
• Filing of an amended complaint - Following the appointment of the lead plaintiffs and approval of lead counsel, plaintiffs and their counsel are generally ordered to file an amended complaint, setting forth plaintiffs' most current and complete description of the facts underlying the litigation. This generally occurs 30-45 days following the appointment of lead plaintiffs and approval of lead counsel.
• Defendants' motion to dismiss complaint - Defendants almost always ask the court to dismiss the Complaint in a securities class action, because the mere filing of a motion to dismiss stops all formal discovery (i.e., the production of documents by defendants and the depositions of defendants' key witnesses) and therefore postpones a process that is both disruptive to the defendants and is often critical for plaintiffs to discover all of the facts about the case, including the many facts which are already known to the defendants. On a motion to dismiss the Complaint, the court merely decides whether there is a legal right to recover if all of the facts alleged in the complaint are true; however, in a securities fraud class action, the court must determine if the complaint sets forth facts sufficient to create a "strong inference" that the defendants' actions were committed with knowledge or recklessly rather than merely negligently. A motion to dismiss will generally be filed by the defendants within 30-45 days following the filing of an Amended Complaint, and further briefs will be filed by the plaintiffs and the defendants addressing the motion to dismiss within the next few months thereafter. Unfortunately, there is no way to predict when the motion will be decided by the court; it could be as soon as one month or as long as a year after all the briefs are filed. Also, if the court decides that the Complaint - or parts of the Complaint - are defective, it will often give the plaintiffs 30 days to file an amended complaint which attempts to correct the defects, which will give the defendants another opportunity to file a motion to dismiss.
• Class certification and notice - Although the case is filed as a "class action", it is not officially a class action until the court determines that the case is appropriate for class treatment and "certifies" the class (including setting forth the dates of purchases which will be included in the class). In securities cases, courts generally will certify a class of purchasers for the period of time in which the defendants made similar representations or failed to disclose the same critical information. Defendants are also generally permitted to take depositions of the lead plaintiffs to determine whether any of them might not adequately represent the class. Although courts may take up the class certification issue soon after the case is brought, this issue is generally not addressed until after any motion to dismiss is resolved. Following certification of the class, a notice will be sent to all class members (by mail, through the same channels that bring shareholders their quarterly and annual reports) notifying class members of the class action. The notice will also inform class members of their right to be excluded from the class action (which is a Constitutional protection against being represented against your wishes but generally only makes sense for those who have large claims which they intend to file separately).
• Discovery - Once the court has determined that the plaintiffs may proceed to prove the misrepresentations set forth in the Complaint, plaintiffs' counsel will seek to obtain documents and deposition testimony from defendants and others, a process known as "discovery". Discovery can take months or years, but generally is conducted pursuant to a time limit discussed by the parties and set by the court. As these cases are complex, it is common for the discovery process to last at least a year, and often an additional short period is necessary for the discovery of "experts" (including those who will testify about the conduct of defendants or about the impact of the misrepresentations on the market price of the stock).
• Settlement - Settlement may be discussed by the parties at any time, but it will generally occur after the plaintiffs have obtained evidence (through formal or informal discovery) about the conduct of the defendants which tends to prove or disprove the allegations in the complaint. Although plaintiffs' counsel sometimes learn sufficient facts from defendants' filings with government agencies or from informal discussions with former employees which would permit settlement discussions before formal discovery is permitted, often serious settlement discussions must await the commencement of formal discovery. Experience suggests that cases most often reach a settlement posture approximately two years after they are filed, although some cases settle earlier and some cases only settle later or not at all.
• Settlement notice and hearing - If the parties reach a settlement, the court will schedule a hearing, and all class members will receive a notice (by mail, through the same channels that bring shareholders their quarterly and annual reports) of the settlement and of a hearing at which the court will consider approval of the settlement. A summary form of this notice will also be published, generally in the Wall Street Journal. If there has not previously been a notice of the class action, the notice will also provide class members with their right to be excluded from the class action (which generally only makes sense for those who have large claims which they intend to file separately). The settlement notice will also include a "Proof of Claim" form (see below).
• Trial - Although very few civil (i.e., non-criminal) cases ever go to trial, a securities fraud class action that does not settle will probably be ready for trial anywhere from two to four years after it is filed, and may last as short as two weeks or as long as months, depending upon the complexity of the issues.
• Appeal following trial or settlement - Following trial or settlement (if anyone has objected), any party (including an objecting class member) may appeal to the appellate court for the district in which the case has been heard. If there has been a settlement or judgment in favor of the class, the payment of funds will be delayed pending the appeal.
• Proof of claim forms - distribution of funds - Following a settlement or judgment (or, occasionally, at the time of class certification even if there has not been a settlement), the class member will receive a "Proof of Claim" form, which requests information about the class member's trades and losses, and documents to support the claim (generally confirmations or brokerage statements, but a class member may substitute a Schedule D from a tax return if the trading documents are unavailable). An administrator appointed by the court will assemble all of these claim forms to determine how any funds received in settlement (or following a judgment) will be distributed to the class members. Class members are generally given 3-4 months to assemble the documents and file the proof of claim, but we suggest that you assemble your documents as soon as you become aware of the Class Action and keep them available. It is much easier to do this soon after the investment rather than years later. It generally takes the administrator about six months to process the claim forms (including verifying the losses and providing an opportunity to the class member to correct any defect), after which we proceed to the court for a final order of distribution. Funds are then distributed to class members; each class member who has suffered an approved loss (measured by total loss or some other method set forth in the notice to class members and approved by the court) receives their proportionate share of the amount of the settlement, less any costs (including attorneys fees approved by the court following notice to class members and an opportunity to object at a hearing).

9. How much will you receive?
Although this is a very good (and much asked) question, it is impossible to determine at the beginning of a case for several reasons. First, as the companies which are sued for securities fraud are often not in good financial shape, little of the settlement funds will come directly from the company, and the attorneys have no right to learn the amount of any insurance coverage until the discovery phase of the litigation. Second, not only is liability of the primary defendants (the company and its officers or directors) unknown at the beginning of a case, but whether claims can be made against other defendants which may significantly increase the overall recovery (such as auditors) will often not be known at the beginning of a case. Even at the time of settlement, there is no way of telling what claims will be submitted until the claims process is completed - not only do we not know how many people will submit claims but we do not know how many shares were purchased at what prices, because the reported trading tells the total numbers of shares traded (often double-counting purchases and sales) but cannot tell us whether each share was traded once or the same share traded many times, which will significantly alter the total loss calculation.