May 28, 2015

Securities Class Actions

Securities Class Action

Given the intense attention that has been paid to financial institutions over the past decade, securities class actions have become more prevalent. In this article, we will be exploring what can lead to a securities class action, what goes into determining the class in a securities class action, and finally how these cases have become more complicated in recent years.

What Leads to Securities Class Actions?

The trading of securities is one of the most heavily regulated things in the world. Those that participate in the exchange of financial instruments are governed by a number of different laws, which are designed to protect those who trade with them, as well as the economy overall. When these regulations are violated, or when they are outright ignored, a financial institution exposes those who trade with it to risk. In these instances, those traders can form a class to seek relief from the financial institution.

img9Also, it is worth noting that financial institutions are in the business of making money. Because of this, these financial institutions market and sell themselves to consumers. In doing this, these financial institutions may make misleading claims about their services or the securities with which they’re involved. In these cases, consumers who were misled by the financial institution and its claims can form a class to seek relief.

Timing is Everything

Determining the affected class for a securities class action can be incredibly complex. Part of determining that class involves figuring out the timeframe during which individual investors could have been affected by the actions of a financial institution. In cases where a financial institution was failing to comply with regulations, the class would depend upon when the financial institution fell out of compliance and when it came back into compliance or when its lack of compliance was exposed.

In cases where a financial institution has made misleading claims about its services and securities, determining the class is more nuanced. The class would begin with investors who conducted business with the financial institution after the first misleading claims were made. The class would then end at the point where it can be determined that investors should have been reasonably aware of the deception. What determines the class will become a divisive subject in the litigation of a securities class action.

Complications for Securities Class Actions

In cases that take the form of the latter outlined above, things have become more complicated. Recently, the Supreme Court ruled in a case called Halliburton v. Erica P. John Fund, Inc., and their ruling will have wide-ranging effects on how classes in securities class actions are certified in the future. In essence, the court found that the defendants in securities class actions can present their own direct evidence with respect to price impact. This evidence, the court ruled, can be used to rebut claims that are made by the class in these cases. Because of this, building a securities class action that alleges a financial institution misrepresented its services or products is much harder than it used to be.

Securities Class Actions Are Big Money

While class actions often lead to large judgments and settlements, none may be larger than those achieved in securities class actions. Even in just the past several decades, there have been many high-profile cases that have resulted in billion-dollar judgments. Given the money involved, securities class actions are often quite complex, and they can take years, if not decades, to litigate. Those on both sides of the case will pull out all of the stops to ensure the outcome for the class action that they want.