PRESSBOX

Becoming a Lead Plaintiff

Typically, once an action is initiated on behalf of a class of investors in a case where significant damages are alleged, a number of related actions with similar factual allegations and causes of actions will be filed by similarly situated investors. For the purpose of maintaining an orderly and efficient proceeding, the court will consolidate all of the related actions into a single lawsuit.  Once the actions are consolidated, courts must appoint a Lead Plaintiff. Doing away with the traditional first-to-file criteria of appointing a Lead Plaintiff, the PSLRA directs district courts deciding which plaintiff will be appointed Lead Plaintiff to determine which investor would be the “most adequate plaintiff”— presumed to be the investor with the “largest financial interest in the relief sought by the class.” This presumption may be rebutted only by proof by another member of the class that the presumptively “most adequate plaintiff” will not fairly or adequately protect the interests of the class, or is subject to unique defenses that render that investor incapable of representing the class.  In addition to selecting class counsel and managing the course of the class action, by serving as Lead Plaintiffs, institutional investors have the potential to increase class recoveries and improve the corporate governance of the companies in which they invest to ensure they are in compliance with federal securities laws. Since passage of the PSLRA, studies have found that when institutional investors serve as the Lead Plaintiff, settlement sizes significantly increase, benefiting all class members. One particular study reported evidence that public pension fund participation is correlated with a greater likelihood of a high-value outcome from litigation, meaning that the recoveries obtained with a pension fund as a Lead Plaintiff represented a higher percentage of the estimated losses than other class actions. Moreover, as a Lead Plaintiff, an institution is in a position to propose important  corporate governance reforms aimed at improving a company’s internal controls to help prevent future misconduct by the company, its executives and directors.

newsletter_aug2008.jpg Source : Scott+Scott August 2008 Newsletter

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