For as long as I have been an investigator, class actions have been the primary focus of the securities litigation on which I've worked. The same was not true during my tenture with a consultancy who's practice was focused entirely on product liability litigation. There I seldom worked on any class action litigation whatsoever, with a few notable exceptions, as the opinion of our firm's management was that individual litigation brought greater compensation to victims and was more punitive to manufacturers. Interesting, then to see the issue of individual litigation versus class participation raise its head in the securities arena:

Fractured Class Actions - "Opt-outs" are a growing headache for companies

Business Week
FEBRUARY 27, 2006

...Plaintiffs' attorney William S. Lerach is at the forefront of what has become the latest headache for defendants in securities cases. No hard statistics are available, but opt-outs appear to be a more popular tactic for plaintiffs' lawyers. "There's no doubt that the numbers are up," says Stanford Law School's Joseph A. Grundfest, who monitors the litigation...

...While Lerach has helped hammer out plenty of class-wide deals in his time, he now lauds the virtues of opting out. "Why should investors sit passively by and take a couple cents on the dollar?" he says. "This is an extraordinarily powerful tactical weapon."

The trend is causing concern in courtrooms and boardrooms. On Feb. 8 a federal judge in New Jersey postponed approval of a $195 million settlement between KPMG International and tax shelter investors because more than 60 of the 284 investors had chosen to pursue their own litigation. Cheryl L. Evans, special counsel for the U.S. Chamber Institute for Legal Reform, says opt-outs increase costs for companies. "When you have this fragmentation, companies are paying to settle several cases when it's more efficient to work on one front," she says...

...There's always a risk that breakaway investors could do worse by striking out on their own, but there's enough evidence to the contrary to keep fueling the trend...

More here.

-- MDT

Labels: KPMG, Standford Securities Class Action Clearing House