Class Action vs. Individual Arbitration Lawsuits

Financial Sector Dominates Securities Class Action Lawsuits

According to a recent study, securities class action lawsuits continued to focus on the financial sector of the securities market. The study conducted by the Stanford Law School and Cornerstone Research found that financial sector companies were named defendants in 66.7 percent of the cases filed in the first half of 2009. The majority of the class action cases filed contained allegations related to securities issued through initial public offerings (IPOs) during the financial system collapse.

Class Actions Provide Limited Recovery

Class action lawsuits are designed to recover damages for a group or "class" of investors who sustained losses from the same cause. For example, a class action may be comprised of investors who lost their investments as a result of fraudulent misrepresentation and /or omission of material facts concerning the risks associate with an IPO. Many individual investors participate in class action lawsuits because the size of the loss is too small or the securities at issue were not held with a full-service brokerage firm. In another study, Cornerstone Research found that for over 1000 class action settlements between 1996 and 2008, the average class action settlement resulted in recovery of approximately three percent of estimated damages. The Cornerstone Research study also found that class action cases typically reached settlements three years to three and one-half years after the cases were filed.

Individual Arbitration Claim vs. Class Action Lawsuit, what it the difference?

Why Consider a Securities Arbitration Claim?

A securities arbitration claim is filed with the Financial Industry Regulatory Authority (FINRA), which is the regulatory organization responsible for resolution of disputes between investors and their broker-dealer. FINRA has established sales practice rules and regulations which govern duties and responsibilities for financial advisors and brokerage firms concerning the handling of investor brokerage accounts. The securities arbitration claim is filed when there is a sales practice violation concerning the handling of an investor account. The securities arbitration process is generally more expeditious than a class action lawsuit.

Securities arbitration claims are filed because of the size of the investment losses, the facts specific to the individual investor, and the resources available to pursue an arbitration claim. These factors are considered in greater detail below:

Size of Investment Loss

Research studies have concluded that investors can expect to recover a small fraction of their estimated damages through participation in a class action lawsuit. As the size of the investment loss increases, the viability of an individual securities arbitration claim becomes a more cost-effective method to recover investment losses. An individual arbitration claim filed with FINRA increases the likelihood of a larger recovery of your investment loss.

Individual Investor Case Facts

An individual securities arbitration claim for sales practice violations is based on facts specific to the handling of an individual investor’s entire brokerage account. The merits of the securities arbitration claim are evaluated based on the investor’s investment objectives, time horizon and risk tolerance. These investor-specific considerations provide the basis for recovery of losses from all of the securities held, in addition to the particular security at issue in the class action. This is another distinct advantage of a securities arbitration claim when compared to participation in a class action lawsuit.

Resources Available

The resources required for an individual investor to file a securities arbitration claim include filing fees paid directly to FINRA and expert witness services, if deemed necessary. Rodriguez Tramont & Nunez, PA contributes time and expertise which is not compensated unless there is a recovery. Due to the resources required to effectively complete the securities arbitration process, it is not economically feasible to file claims under $100,000.

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Steps to Recover Your Investment Losses

  • Contact Our Legal Team for a Brief Case Facts Summary
  • Schedule a Time for an Interview with an Industry Expert
  • Gather Critical Case Documents
  • Review Assessment of Account Damages with Legal Team
  • File Statement of Claim for a FINRA Securities Arbitration