The U.S. Supreme Court’s decision in Halliburton v. Erica P. John Fund, issued earlier this week, has shined a spotlight on the issue of securities class action litigation. (You can read our statement on that decision here).
In the wake of this decision, ILR is highlighting its recent report, “Economic Consequences: The Real Costs of U.S. Securities Class Action Litigation.” This report examines the true costs of securities litigation to investors.
Since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995, thousands of such class action lawsuits have been filed alleging trillions in shareholder damages. The principal argument in support of this litigation, typically advanced by the securities class action plaintiffs’ attorneys whose fees are contingent on the size of any recovery, is that this type of litigation provides a significant benefit to their clients by winning billions of dollars in settlements from companies to be distributed back to allegedly harmed investors.
ILR’s report, however, finds that shareholders actually experience a stock price drop associated with the filing of a securities fraud class action lawsuit and that, because of the losses associated with the litigation, they lose much more than they gain in any subsequent settlement amount.
In fact, according to the report, a private securities class action lawsuit, filed within 30 trading days after the date that the suit defines to be the end of the class period, results in a cumulative loss of 4.44% of the stock’s price.
Click here to read the full report.