Class Actions and Securities Arbitration: Paths to Recover Investment Losses

Investors who suffer investment losses which are “no fault of their own” ask themselves, who is responsible and how can they recover their losses.  Class action lawsuits are designed to recover damages for a group or “class” of investors who sustained investment losses due to the same cause of action and security at issue.  Many individual investors participate in class action lawsuits because the size of their loss is too small to merit an individual litigation claim, known as a securities arbitration claim.

While a class action lawsuit may help a group of investors with smaller losses, the larger an individual investor’s losses, the more likely a securities arbitration claim filed with the Financial Industry Regulatory Authority (FINRA) would result in a greater investment loss recovery.  Generally speaking, as investment losses increase securities arbitration is a better path to recover investment losses for individual investors.

Final note:  In the event your investment losses are in a security that was held in a full-service brokerage account and your brokerage firm was a “named” party in the class action lawsuit, then you might need to “opt-out” as a class member of the class action lawsuit to pursue a securities arbitration claim.  If your brokerage firm is not a “named” party in the class action, then class action and securities arbitration are both paths to recover your investment losses.  Investors are encouraged to seek competent legal advice from a securities law firm, KlaymanToskes can be contacted at (800) 997-9956.

Securities Arbitration Sales Practice Violations

Securities arbitration is frequently a better option to recover your investment losses.  Securities arbitration is an expeditious, low-cost litigation process that focuses on the unique set of facts related to an individual investor’s brokerage account, known as sales practice violations.  The sales practice violations may include:

Investment losses that can be attributed to FINRA sales practice violations are considered causes of action which may lead to a meritorious claim for damages.

Securities Arbitration Case Facts May Be More Favorable

An individual securities arbitration claim would look at the facts specific to the individual investor and would take into consideration all the investments held with the brokerage firm and elsewhere.  The arbitration claim would also look at multiple factors including the investor’s investment objectives, time horizon, and risk tolerance, amongst others.  Investors’ claims for damages may include losses over longer periods than class actions, prior investment history, losses from entire portfolio and multiple sales practice violations, which can lead to greater investment loss recovery.

FINRA is the regulatory organization responsible for the regulation and resolution of disputes between investors and their brokerage firm and financial advisor. FINRA has established sales practice rules and regulations which govern duties and responsibilities for financial advisors and brokerage firms when acting as a financial advisor to investors. FINRA arbitration claims can be filed when there is a violation of a FINRA rule or standard by a FINRA member and/or in the case of misconduct by a FINRA registered representative.

FINRA Arbitration Statistics

A review of recently published FINRA statistics details investment recovery statistics made by investors through settlements and awards.  According to FINRA arbitration statistics, “the majority of customer cases – approximately 69% – result in settlements reached by the parties. Typically, approximately 18% of all cases proceed to award. For more information on how cases close, view the dispute resolution statistics”.

How Were Filed Cases Resolved?
  • After Regular Arbitration Hearing – 13%
  • After Special Proceeding Hearing – 0%
  • After Review of Documents (Paper Cases) – 2%
Cases Resolved by Other Means
  • Direct Settlement by Parties – 57%
  • Settled via Mediation – 13%
  • Withdrawn – 9%
  • All Others – 5%

Recent Trends in Class Action Litigation Cases

Class Action lawsuits are an important tool which allows multiple plaintiffs to combine together, frequently against a large, well-capitalized corporate defendant. Generally speaking, class action litigation is a specialized area of law focused primarily on violations of securities laws related to corporate failure to adequately disclose accurate facts to the investing public and willful acts of fraud and wrongdoing, which negatively affect the value of public traded companies.  Investors as a class, file class action lawsuits when members of the group suffer economic losses as the result of the same cause, or violations.  A review of recent academic studies will help provide perspective, recent trends, and the potential outcomes from participation in a class action lawsuit.

NERA Economic Consulting Study Findings

A recent NERA Economic Consulting Study published in January 2020, titled “Recent Trends in Securities Class Action Litigation: 2019 Full-Year Review,” provides insight into securities class actions lawsuit trends affecting investors and the recovery of investment losses.

Trends in Filings

According to the NERA Economic Consulting Study, “Between 2015 and 2018, federal securities class action filings dramatically increased, reaching a high of 433 cases in 2018, nearly double the level observed in 2014.  In 2019, there was no change in new filings, with 433 securities class actions filed. This represents the third consecutive year with more than 400 cases filed, a higher level than has been recorded since 1996.”

Class Action Filings by Sector

Highlights of the Federal Class Action Filings by Sector (exclusive of Merger-Objection cases) for class actions filed in 2019 are summarized below:

  • Health Technology & Services – 22%,
  • Electronic Technology & Technology Services – 20%,
  • Finance – 14%,
  • Consumer Durables and Nondurables – 8%,
  • Commercial and Industrial Services – 8%,
  • Producer & Other Manufacturing – 5%,
  • Consumer & Distribution Services – 6%,
  • Transportation & Utilities – 4%,
  • Retail Trade – 4%,
  • Process Industries – 4%,
  • Energy & Nonenergy Minerals – 3%, and
  • Communications – 2%.

KlaymanToskes has the experience to advise investors about the options available and whether to participate in a class action and/or pursue an individual securities arbitration claim to recover investment losses. There are advantages to both options however, depending on your personal case facts, a careful review is required to advise our clients regarding which path would result in the most favorable outcome.  KlaymanToskes is dedicated to investor advocacy which combines legal strategies with sophisticated financial theories of financial damage designed to maximize investment recovery outcomes.

About KlaymanToskes

KT is a leading national securities law firm which practices exclusively in the field of securities arbitration and litigation, on behalf of retail and institutional investors throughout the world in large and complex securities matters. The firm represents high net-worth, ultra-high-net-worth, and institutional investors, such as non-profit organizations, unions, public and multi-employer pension funds. KT has office locations in California, Florida, New York and Puerto Rico.

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