LAW OFFICES OF TIMOTHY L. MILES
TIMOTHY L. MILES
(855) TIM-M-LAW (855-846-6529)
[email protected]
(24/7/365)
Securities Class Action Lawsuits provide a way to recover losses for investors, but opting out could be more profitable for some. Recent studies reveal that plaintiffs who opt out typically recover several times more than class members, with opt-out settlements boosting plaintiffs’ recoveries by nearly 13% on average.
Class actions give strength in numbers, yet an opt-out or direct action lets investors take more control of their claims. The numbers tell an interesting story – between 2019 and the first half of 2022, securities class action lawsuit settlements with at least one opt-out jumped to 11.5%, up from just 5.8% during 2006-2018. Banks, pension funds, and insurers lead this growing trend among institutional investors.
The choice to opt out is not simple. Individual lawsuits often bring higher compensation compared to class action settlements, but they come with their own set of challenges. To name just one example, see the 5-year old Supreme Court decision in CalPERS v. ANZ Securities, Inc. that ruled class actions do not toll the three-year statute of repose of the Securities Act.
This piece explores securities class action lawsuits, walks through the mechanics of an opt out class actionn, and highlights key factors you should weigh before making your litigation decision, including the benefits of a securities class action lawsuit settlement. You should carefully weigh the pros and cons of opting out carefully with counsle prior to making such a big decision.
A securities class action is a lawsuit that represents investors who bought or sold company securities during a specific time called the “class period.” These investors lost money due to alleged violations of securities laws. Companies often make misleading statements or fail to reveal important facts that artificially drive up stock prices.
Federal Rule of Civil Procedure 23 governs securities class actions. One or more lead plaintiffs can represent all investors in similar situations. The class period starts when a company makes false statements and ends after the truth comes out through “corrective disclosures“. Most claims fall under the Securities Act of 1933 and Securities Exchange Act of 1934. These claims often deal with Rule 10b-5 violations for exchange-traded securities or Section 11 claims that trace back to misleading registration statements.
Investors can choose to exclude themselves from a securities class action lawsuit settlement and file their own lawsuit against the defendants. The court automatically includes all qualifying investors in a certified class action. They must submit written notice to the court before a deadline to opt out. Investors who opt out give up their rights to any class settlement or judgment.
Opt-out plaintiffs are mostly prominent institutional investors like pension funds, mutual funds, and hedge funds. These investors make calculated and strategic decisions. The number of opt-outs has grown substantially. All but one of these settlements had at least one investor opt out from 2019 through mid-2022 (11%), compared to just 3% between 1996 and 2005.
Investors choose to opt out to control their litigation strategy and seek higher recoveries. Direct-action plaintiffs can add more claims or defendants beyond the class action’s scope. These opt-out settlements reach conclusions faster than class actions that take up to six years to pay out. The most compelling reason is that opt-out recoveries often yield more than ten times the average class action recovery rate of just 2% of investor losses.
Opting out of securities class action lawsuits gives institutional investors several key advantages. Recent data shows opt-out rates reached 11% of settlements between 2019 and mid-2022, up from just 3% during 1996-2005.
Direct actions let investors take full control of their case. Class actions require lead plaintiffs to make decisions for everyone, but opt-out plaintiffs can choose their own counsel and decide their approach. They get to make key choices about strategy, when to settle, and how to present their claims. Investment managers find it better to run their own litigation instead of just accepting what class counsel decides.
The chance to get much bigger payouts makes opting out very attractive. Class actions with billions in damages usually settle for only 2.5% of total losses, but opt-out settlements routinely pay several hundred percent more than class recoveries. Some direct actions have even achieved payouts thousands of percent higher. A newer study shows opt-out plaintiffs got 13% more on average than class settlements, with some cases getting over 20% more.
Direct actions let investors pursue claims they can not make in class proceedings. They can address purchases outside the class period, securities not in the class action, or corrective disclosures the original complaint missed. Opt-out plaintiffs can also name extra defendants and follow legal theories that need individual proof.
Choosing to opt out may offer some advantages, but it comes with substantial drawbacks. Investors should weigh these risks carefully against any potential benefits.
When you opt out, you permanently forfeit all rights to participate in the class action and any settlement proceeds. Your individual lawsuit’s failure means you can’t go back to claim a share of the class recovery. This leaves investors with nothing – a devastating outcome.
Class members pay minimal expenses, but opt-out plaintiffs must cover their own litigation costs. On top of that, these plaintiffs must deal with discovery obligations. They need to produce confidential documents, answer interrogatories, and prepare their employees for depositions. The expenses can substantially reduce net recovery, even with a favorable outcome.
Time limitations create the most significant challenge. The Supreme Court’s ruling in CalPERS v. ANZ Securities (2017) determined that class actions don’t toll the Securities Act’s three-year statute of repose. This principle now applies to the Securities Exchange Act five-year repose period. District courts have dismissed many opt-out cases filed after these deadlines, leaving investors with zero recovery.
Investors must review several critical factors that could make or break their case before deciding to pursue an individual lawsuit.
You should calculate both maximum and likely recoverable damages through an opt-out action. Qualified experts need to analyze trading records and assess potential damages under relevant securities laws. These experts might need to conduct an event study to determine if stock price declines were statistically significant and linked to fraud rather than market forces. Your damages must be analyzed using both last-in-first-out and first-in-first-out methodologies, which can lead to different calculations.
You should get into claims not covered in the class action. Lead plaintiffs might lack standing to pursue all claims or might strategically leave out certain claims. These “uncovered claims” could include purchases outside the class period, securities not covered in the class action, or losses from corrective disclosures missing in the complaint. The ARCP class action (2020) saw many investors opt out to pursue high-value claims on swap securities that were not part of the original action.
You must check if defendants can fund a meaningful settlement if considering an opt out class action . Defendants might struggle to pay class-wide damages but could fully satisfy an individual judgment in some cases. Securities class actions with billions in damages usually settle for just 2.5% of losses due to these “insolvency constraints”. Opt-out class action settlements for tens of millions face fewer constraints and often result in larger loss percentages.
Early collaboration with seasoned opt-out counsel makes a difference. Attorneys can review trades, timing of alleged misstatements, applicable laws, and help secure tolling agreements. They can also analyze whether potential opt-out recoveries justify the costs. This process should include discussions with analysts and portfolio managers who made the investment decisions to understand any individualized evidence.
Securities class action lawsuits are complex legal battles where opting out can have major implications. So investors just need to weigh both rewards and risks before they choose their path. Class actions give strength in numbers, but direct actions let you have more control and can lead to higher payouts – often ten times more than staying in the class.
In spite of that, these benefits come with real trade-offs. Investors who go for individual actions deal with higher costs, time commitments, and strict deadlines that could wipe out their recovery rights. The 2017 CalPERS decision shows how crucial timing is, especially when class actions no longer pause the statutes of repose when considering an opt out class action.
You should get a full picture of your claim strength, assess uncovered claims, know all deadlines, and check the defendant’s financial health before making this big decision. Getting help from experienced legal counsel early is key to handling these complex issues.
More institutional investors opt out these days, which shows the value many see in this approach. Each case has its own unique factors that just need careful review. Your choice between staying in a class action and participating in the securities class action lawsuit settlement or going for a direct lawsuit depends on your situation, investment size, and how much risk you can handle. This knowledge about the pros and cons of opting out, helps you make a smart decision that protects your money while getting the best possible recovery.
Understanding your options in securities class action lawsuits can significantly impact your potential recovery and legal strategy.
• Opt-out plaintiffs typically recover 10x more than class members, with settlements averaging 13% additional recovery compared to the standard 2.5% class action rate.
• Institutional investors increasingly choose direct action for greater control, with opt-out rates rising from 3% (1996-2005) to 11% (2019-2022).
• Timing is critical due to strict deadlines – the 2017 CalPERS decision means class actions no longer toll the 3-year Securities Act statute of repose.
• Opting out requires bearing your own litigation costs and risks, including potential dismissal with zero recovery if your individual case fails.
• Consult experienced legal counsel early to evaluate claim strength, assess uncovered claims, and secure necessary tolling agreements before deadlines expire.
The decision to opt out involves trading the security of class participation and hopefully participating in securities class action lawsuit settlement for potentially higher rewards in an opt out class action but significantly greater risks and costs.
If you need reprentation in securities class action lawsuits, an opt out class action, or believe you have additional questions about the opt out process, call us today for a free case evaluation. 855-846-6529 or [email protected] (24/7/365).
Timothy L. Miles, Esq.
Law Offices of Timothy L. Miles
Tapestry at Brentwood Town Center
300 Centerview Dr. #247
Mailbox #1091
Brentwood,TN 37027
Phone: (855) Tim-MLaw (855-846-6529)
Email: [email protected]
Website: www.classactionlawyertn.com
Facebook Linkedin Pinterest youtube
