WASHINGTON, D.C. – A U.S. Chamber Institute for Legal Reform (ILR) study of the securities class action litigation system shows that there is a substantial disconnect between what the system is supposed to do in terms of compensating investors and what it actually does. The report was released today as part of ILR’s 6th Annual Legal Reform Summit.
“The average American investor gets the short end of the stick in the securities class action system as compared to large institutional investors,” said ILR President Lisa Rickard. “The stock holdings of individual investors are generally too few in number to offset losses in stock value that follow allegations of securities fraud.”
The study was conducted for ILR by Navigant Consulting to determine if private securities class actions are serving the best interests of all investors. It revealed that most institutional investors don’t simply break even from securities class action settlements; many benefit, accumulating the gains of stock prices inflated by alleged fraud and also receiving compensation for losses suffered as a result of disclosure of the alleged fraud.
“We’ve seen a dramatic surge in the number of securities class actions because the plaintiffs’ bar has seized on this arena as another way to game the system for its own benefit,” continued Rickard. “Just five law firms have collected more than $2.75 billion in fees over the last ten years. Class members who remain invested in the defendant companies are the real losers. The companies in which they’re invested pay settlement and legal fees, leaving the shareholder with devalued stock.”
Other highlights of the Summit included the recognition of Rep. Lamar Smith (R-TX) for his leadership in supporting federal legal reform and the release of Trial Lawyers, Inc.: Healthcare, a report on the damaging effects of lawsuit abuse on American healthcare costs and practices by the Manhattan Institute.
The mission of the Institute for Legal Reform is to make America’s legal system simpler, fairer and faster for everyone. It seeks to promote civil justice reform through legislative, political, judicial and educational activities at the national, state and local levels. The U.S. Chamber of Commerce is the world’s largest business federation, representing more than three million businesses and organizations of every size, sector and region.