Anyone here been involved in class action (or private) suit against a company accused of fraud?

[beerntrading]

After some research, it seems like class actions typically only cover common shares (like this one); I want to know if anyone here has pursued or been involved in a lawsuit vs a company relating to losses on options?

Doubtful. Presumably your counter party performed their obligations and were prepared to deliver the shares regardless. Who could you sue? It'd be one heck of a hail mary to allege tortuous interference on something like that (especially considering they did not interfere with your counter party's ability to perform their obligations--nor could you show they had knowledge of it, which I suspect would be another component).

Then as a practical matter, where the money comes from. There's very little downside to a company dragging on litigation because the legal costs and damages come out of the same basket.

Finally, there's the whole moral question of this (not saying this applies directly, but typically applies to shareholder lawsuit plaintiffs). If you owned shares of a company, lost value due to fraud, sold, and sued; you are quite literally suing the person who bought the shares off of you for actions committed by the company while you owned it and they did not. And that's just a shitting thing to do.

 

[JSOP]

I recently got docs in the mail about a class action involving a company I used to own options and a small # of shares in. Their (now ex-) CEO was accused of insider trading, fraud, and a bunch of other stuff, causing stock to drop around 25%.

The mailed docs allowed me to either opt into the class (and receive a relatively small settlement), or opt out, which would preserve my ability to sue the company privately. The refund I stood to receive was tiny (after lawyer fees) so I never opted in or out.

My Q's:

1) This class action specifically only covered common shares. I owned a small amount (which is why my refund would have been so small), but I actually DID suffer larger losses on my option positions. After some research, it seems like class actions typically only cover common shares (like this one); I want to know if anyone here has pursued or been involved in a lawsuit vs a company relating to losses on options? Was it a class action (that happened to cover options) or did you pursue it privately?

2) If you pursued something privately, any tips on finding a competent lawyer specializing in these suits? Most of the law firms that quickly announce their intention to pursue a class action whenever there's negative news about a company are dime-a-dozen bottom-feeding ambulance-chaser types. Are there certain key words / specialties I should look for if I wanted to pursue this privately?

I think it all depends on the value of the loss vs. how much would cost you to pursue the lawsuit on your own against the defendant. I mean if the class lawsuit wins and you can see that the loss amount that you stand to recover plus any damages that the court might be able to reward you is extremely significant and that is overwhelmingly larger than your legal cost of you pursuing a lawsuit against the defendant on your own then yes it might be worth it for you to launch a lawsuit against the defendant with your own private lawsuit otherwise no. I've participated in class action lawsuits regarding manipulation of stocks or failure of disclosure of material information that caused loss of stock value, the amount that you end up getting is small but at least it's something, better than nothing if there hadn't been a class action lawsuit.

 

[JSOP]

Finally, there's the whole moral question of this (not saying this applies directly, but typically applies to shareholder lawsuit plaintiffs). If you owned shares of a company, lost value due to fraud, sold, and sued; you are quite literally suing the person who bought the shares off of you for actions committed by the company while you owned it and they did not. And that's just a shitting thing to do.

This I don't agree. If the company committed fraud that led directly to any loss in value of the shares, then that company is liable for damages regardless who bought its shares. Those people who bought the shares and became the owner of a company who committed fraud didn't have to buy the shares but they did. And that is not something that the people who suffered damages from the fraud can forsee so why should they care? If the new shareholders who bought the shares who unwittingly and unknowingly became the new owners of the company who committed fraud and hid the fraud, they can turn around and sue the company too because they are the victims too but the previous shareholders who suffered loss in value of their shares are still entitled to recover their losses.

 

[ajacobson]

1. You can do it yourself - an attorney may help you, but the circuit courts are pretty friendly to plaintiffs.
2. Go visit your closest federal building and between the court and the internet, you'll see a lot of sample filing forms.
Forget about proving fraud - not your problem - you'll need to prove their liability and your damages.
3. Make sure they are properly served as there is a fair likelihood they won't show - their not showing doesn't "automatically" mean you'll win, but some circuit court judges get really pissed when defendants don't show up.
4. Don't go into small claims even if they have an operation in your state and you're both eligible to use small claims - this is simply my opinion of what goes on in small claims. Federal judges are pretty sharp and will - most likely - have a better sense of things. BTW if you do go to small claims the defendant can elevate it in most cases.
If your damages aren't substantial and you really don't want to opt. into the class action, you may be wasting your time. I know most people assume the only people who make out in class actions are the attorneys.
I worked with a guy who files these all the time in the circuit and frequently wins - have very well documented materials to prove your damages. My friend sued United for some lost baggage - won in court and threatened United with having one of their planes Denver Booted -had a check by FedEx the next morning.
Again they probably won't show so make really certain they get served properly and you can prove it. Have a well-documented case as to why you entered into the trade(s) and assemble those documents and records now while things are fresh. Gather any research you used of articles and GATHER THEM NOW. DON'T GO INTO COURT UNPREPARED. Being an investor and not an attorney is explainable - being unprepared isn't.
There is a very old joke about why dry cleaners always try to avoid lawsuits. The joke goes that every judge at some time has been screwed over by a dry cleaner.

 

[d0rian]

Doubtful. Presumably your counter party performed their obligations and were prepared to deliver the shares regardless. Who could you sue? It'd be one heck of a hail mary to allege tortuous interference on something like that (especially considering they did not interfere with your counter party's ability to perform their obligations--nor could you show they had knowledge of it, which I suspect would be another component).

Then as a practical matter, where the money comes from. There's very little downside to a company dragging on litigation because the legal costs and damages come out of the same basket.

Finally, there's the whole moral question of this (not saying this applies directly, but typically applies to shareholder lawsuit plaintiffs). If you owned shares of a company, lost value due to fraud, sold, and sued; you are quite literally suing the person who bought the shares off of you for actions committed by the company while you owned it and they did not. And that's just a shitting thing to do.

The 1st paragraph is interesting...I'm not entirely sure whether it's 100% accurate, but there is a particular logic to the idea that options are just contracts between 2 private parties, and while they derive their value from the company's common stock, it's an entirely different transaction than buying common shares that have been issued by the company, and presumably the official share issuance carries with it certain warranties/representations etc...while options are just a couple guys making a side bet, for which it's not entirely clear whether there should be recourse against the company. That being said, while the option chain is created entirely independent of the company (my understanding is that they literally have no say in whether an option chain is offered on their stock), the options market is nonetheless official / regulated and it wouldn't surprise me to find out that public companies have some kind of umbrella fiduciary duties and are liable to the derivatives markets if they are in breach.

In any case, doesn't seem like my post has elicited stories (as of yet) of any 1st-hand-accounts of options-related lawsuits, which I'd have thought it might. Happy to have anyone else chime in if they have relevant info.