|
 |
| 2002 News and Press Releases |
|
|
HEADLINE ARCHIVED:
Should You Sue?; Guess What: You Already Have. What Do You Do When You're Part Of A Class Action?
By: Nicholas Varchaver
Fortune. December 9, 2002
_________________________________________________________________________
EXCERPT: Some years back Bob Lewis experienced the investor's equivalent of getting a Publishers Clearing House letter, the kind that proclaims, "You may have already won $1 million!" Lewis received a notice inviting him to apply for his share of a class-action settlement involving a small company whose stock had taken a bath. Lewis, a retired Exxon engineer living in Camden, Ala., dutifully assembled his trading records and filled out the claim form. When he got his share of the settlement sometime later, it turned out to be roughly comparable to what most people win from Publishers Clearing House. "I think I got about $4 back on an $8,000 loss," Lewis recalls. These days Lewis--an avid investor who says his paper losses have totaled several hundred thousand dollars during the market collapse of the past few years--ignores the class-action notices that clog his mailbox. "I don't even bother," he says. "I just throw them in the wastebasket." His trash is eloquent testimony. If there's one thing that exceeds investors' rage in the wake of the markets' demise and the string of corporate scandals, it is their cynicism about shareholder class actions. Lewis could be speaking for many investors when he says, "My feeling is they don't benefit anybody but the lawyers." On one level that perception is absolutely correct: No one but the largest investor will ever receive anywhere near what a plaintiffs lawyer makes in a class action. Regular shareholders seem like afterthoughts in the suits that are brought in their name. But the fact is (whether you like it or not), there's a good chance you're already a plaintiff in a class-action case. By definition, such suits are filed on behalf of all investors in a particular stock when a company's alleged misdeeds have damaged the share price. And with endless examples of egregious conduct by giant companies in the past few years, they've been filed at a record clip. So now that you're a plaintiff, what can you expect? For most investors, class actions are a spectator sport: All you need to do is sit back and watch. You're eligible for a share of a potential settlement unless you explicitly "opt out" of the suit. Once a settlement is reached, making a claim generally involves no more effort than filling out a form and gathering trading records that prove you owned the relevant stock at the appropriate time. If you're inclined to sign on, the only question is whether the potential recovery is worth, say, an hour rooting around for your old confirmation slips. "There's really no rational economic reason for a class member not to participate in a settlement," says Boris Feldman, a partner at Wilson Sonsini Goodrich & Rosati who often defends companies sued in class actions. Figuring your potential recovery is another matter. The average class-action settlement yields 5.1% of the estimated damages--essentially the amount of market capitalization lost due to the company's alleged misconduct, according to Cornerstone Research. That means a $10,000 drubbing on some nightmare tech company whose name you can't even bear to utter would generate an average payout of $510. But don't forget: You get that $510 for $10,000 in losses caused by the company's malfeasance; there's no reward for stock drops caused by plain old shoddy management or the tech meltdown. Still, recoveries can fluctuate wildly. Cendant investors are getting back nearly 50% of their losses in that record-setting $ 3.2 billion settlement, according to Securities Class Action Services. Even Publishers Clearing House hands out a fat check now and then.
|
|
|
