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What is a class action?

A class action is a type of lawsuit in which one person or a small group of persons (known as a "lead plaintiff" or "class representative") files a suit on behalf of a large number of people who have suffered a similar type of injury (the "class"). Under Rule 23 of the Federal Rules of Civil Procedure, a lead plaintiff may sue on behalf of all members of a class only if:

  • there are so many class members that it would not be practical for each member to bring an individual lawsuit

  • there are questions of law or fact common to the class, which means the claims against defendants arise out of the same set of operative facts and are based on common legal theories

  • the claims of the lead plaintiff are similar to the claims of the class

  • the lead plaintiff will fairly and adequately protect the interests of the class

In a class action, the lead plaintiff has ostensibly filed suit in an effort to recover the damages suffered by the entire class. The lead plaintiff is not entitled to any recovery beyond that obtained on behalf of similarly situated class members. Members of the class action other than the lead plaintiffs typically have no meaningful interaction with the attorneys representing the class and have little control over the amount for which the class case settles.

What is a securities fraud class action?

In a securities fraud class action, the lead plaintiff generally alleges that defendants violated the federal securities laws by issuing false or misleading statements artificially inflating the stock price of the defendant corporation; investors purchased the stock at the artificial price; and, when the truth was revealed, the stock price declined significantly and the investors were damaged as a result. The class members are all of the investors who purchased or otherwise acquired the securities during the "class period"— usually from the day of the first misleading statement until the day that the truth was disclosed. Allegations of securities fraud involving publicly traded companies commonly result in the filing of a class action. As is evidenced here, the typical securities fraud class action settles for only 2-3% of investors' losses.

Can an investor only file a complaint for violation of the securities laws as a class action?

No. Any investor with a loss can file an individual action for violations of the securities laws. However, there are many practical considerations, including the size of your loss, that investors should consider before filing an individual action.

What is an individual securities fraud action?

There are generally three types of individual actions for violations of the securities laws. First, an individual or a small group of investors files a complaint alleging securities fraud where there is no class action with similar allegations. Second, there is a class action, but the particular securities purchased by the investor or legal claims of this investor are not part of the class action. Third, there is a class action but the investor decides to exclude himself or "opt out" of the class action and pursue an opt out action.

What is an opt out action?

When a class member excludes himself from the class and pursues an individual action, this is called an opt out action. Opt out litigants control their own cases, determine whether to accept or reject settlement offers, and are able to interact with their attorneys to assure their interests are best represented. Opt out litigants may have the option to pursue claims under state law as well as additional federal legal claims not available on a class-wide basis. As documented here, class actions typically settle for 2-3% of investors' losses. Opt out cases, on the other hand, have regularly settled for between 30% and 80% of the plaintiff's damages.

Do I have to wait until I receive a notice with a request for exclusion before filing an individual action?

No. In a class action, a notice, which explains the nature of the action, the definition of the class certified, and the class claims and defenses, must be sent to class members either at the time the class is certified by the court and/or when the case settles. The notice in securities fraud class actions almost always provides that the court will exclude from the class any member who requests exclusion. An investor may file an individual opt out action before receiving a notice that contains a request for exclusion. However, there may be statute of limitations concerns.

I received a notice of a settlement in a securities fraud class action case. What should I do?

A class member that receives a notice of a settlement has several available options. You may do nothing, in which case you will not be able to recover your pro rata share of the settlement and you will be precluded from bringing any future claims to recover these investment losses in the future. You may submit a proof of claim form (i.e., your trading records in the subject securities) and receive a pro rata share of the settlement. You may object to the settlement and/or the requested attorneys' fees. You also may exclude yourself from the settlement and pursue an individual action. If you have suffered significant investment losses exceeding $1 million, you should consider contacting DST to evaluate your options.

How do I know if I should file an opt out case?

If you have suffered significant investment losses exceeding $1 million, you should consider contacting DST to evaluate your options. We provide a free analysis and welcome the opportunity to review the facts surrounding your loss. In our evaluation, we consider numerous factors including the timing and amount of your purchases and sales; the strength of the allegations against defendants; the stage of the proceedings; whether any criminal or civil charges were filed by the SEC or DOJ; loss causation and/or proof of damages issues; the defendants' ability to pay a judgment; and, the adequacy of any class action settlement.

How much of my investment loss can I recover in an opt out case?

Historically opt outs have typically settled for between 20% and 40% of the plaintiff's damages, but every case is different and the outcome depends on the unique facts of each case.

Will filing an opt out case attract unwanted media attention to my fund?

It is unlikely that filing an opt out case will attract any media attention. Quite simply, opt out litigants rarely file newsworthy cases raising novel legal or factual assertions previously unknown to the investing public. The list of funds that have filed individual securities actions include some of the most prestigious and recognizable names in the industry. These funds have successfully brought individual actions while attracting little or no media attention. In addition, DST is sensitive to the fact that most fund managers seek to avoid media attention and we do not seek to publicize the individual actions that we bring.

How much of our time will this take?

Filing an individual action or opting out of a class action will take more time than remaining an absent class member, which requires little time at all. How much more time will depend on the unique circumstances of each case and the level of involvement sought by the individual client. In general, the client would review drafts of the complaint and important court filings. If the case goes into discovery, relevant documents must be collected and copied. Sometimes the deposition of the person with the most knowledge about the relevant securities trades will be necessary. Oftentimes, these cases settle without the need for such depositions. Finally, in the event of mediation, the client must analyze and approve settlement proposals with the aid of counsel.

What is the minimum size loss that would warrant filing an opt out case?

Investors need not suffer eight-figure losses to warrant filing an individual action. Every case is unique. However, depending on the facts and circumstances of the case, investors with losses less than $5 million may not have suffered sufficient damages to warrant filing an individual case. If you have suffered investment losses of $1 million or more, please contact DST for a free evaluation of your options.

How much will prosecuting an individual action cost?

If we agree to take your case after performing a free evaluation, DST will litigate your case on a contingent fee basis. That means we will only be paid a percentage of what you recover. We will front the cost of litigating the case, and if the case is unsuccessful we will not be paid for our services or the risk we incurred. DST's contingency rates are tailored to the facts of the specific case and competitive with other law firms that specialize in securities fraud actions, including securities class action attorneys that oftentimes are awarded 25% or more of the class action recovery.

Will DST provide references?


Will DST work with my current external counsel?

Yes. The founding partners of DST have extensive experience working with inside and outside counsel.