That... is a good point. Actually, suing a company for securities fraud seems kind of strange when you put it that way. How could a shareholder derive net benefit from suing a company for a share of the assets they already own? Unless they've already sold the shares and they're suing to try and recover their loss? Is that allowed?
Do you still have to be a share holder when you sue?
Or can it play out like, I own xx shares in Y Corp. Y Corp does something bad and share price goes down, I sell my stake and sue Y Corp for securities fraud for making my shares go down during the time period I owned them?
That still seems strange to me; everyone's shares went down in value, not just yours. Should you be compensated for your loss by the remaining shareholders just because you decided to sell your shares and they didn't? If everyone sold their shares, wouldn't the price have gone down even _more_?
Could it be even worse -- that they are shorting the stock by the time the lawsuit goes to court?
The notices of class action lawsuits for stocks I've owned have only stipulated that you've owned the stock during some time window, as far as I recall.
IANAL, but I think you've right that you don't need to hold on to the shares, and you've pointed out the only groups of investors who would benefit from the judgement. The most benefited would be those who were harmed but sold their shares before the lawsuit was announced; shareholders who sold their shares before the matter was decided are likely to benefit to a lesser degree.
In reality, class-action lawyers go looking for class members to file suit on behalf of, and make special arrangements for them to receive additional compensation above and beyond what 'regular' class members get.
Yes, that's how it works, except you would rarely sue yourself.
I work for a hedge fund. Every year we send a list of all our transactions to a company. They recover money on our behalf from any legal action that may happen.
These things take a long time though. We are still getting payouts from stuff that happened in 2014.
>I work for a hedge fund. Every year we send a list of all our transactions to a company. They recover money on our behalf from any legal action that may happen.
Is there an equivelent for a passive investor that just holds ETFs? Or does the fund already do it for me?
If only a subset of shareholders are suing, e.g. shareholders who bought shares between date X and date Y, they are only losing a fraction of a dollar in share value for every dollar they win in the lawsuit. They are gaining at the expense of shareholders who are not part of the lawsuit.
(Ignoring court fees.. the suing shareholder is paying court fees on both ends, could end up being net negative.)
Possibly? I would have thought if the problem is artificially inflated price, shareholders who didn't buy or sell during the period are not affected, but to be honest I don't know how these suits work in details.
Just picking at random off Google, I looked at the Pinterest suit, and it's a big shareholder suing Pinterest Inc... on behalf of Pinterest Inc. So yeah you might be right. Sounds very odd.
