Derivative vs. Securities Class Actions: How Investors Decide Which Case Path Fits the Allegations
Corporate misconduct costs money in a number of ways, and shareholders who own the stock may act for themselves or on behalf of the company. The attorneys at Federman & Sherwood file both securities class action and shareholder derivative lawsuits on behalf of clients.
In a shareholder derivative lawsuit, investors are filing a lawsuit on behalf of the company. It is the company itself that receives damages because it lost money, and investors do not receive a direct payout. In a securities class action lawsuit, investors who have been wronged file a lawsuit to seek compensation for themselves to recover the money that they have lost. The type of lawsuit you choose to file depends on the facts and circumstances of your situation.
Learn more about the financial recovery that may be available to you as an investor, or what you can do on behalf of the company, by speaking with a national securities litigation lawyer at Federman & Sherwood. We offer free consultations to discuss your case, and you can arrange for one by calling us at (800) 237-1277.
When You May File a Shareholder Derivative Lawsuit
Whether an investor leads a shareholder derivative lawsuit or files a class action is determined by who the victim was and the exact actions that led to losses. Shareholder derivative lawsuits are often filed when there has been a lapse in oversight on the part of the directors or officers. In this case, it is the company that suffered harm, even though investors may have sustained their own individual losses due to the corporate misconduct. Common examples of reasons why investors may file a shareholder derivative lawsuit on behalf of the company include:
- Directors or officers have engaged in a self-dealing transaction
- There was a lapse in oversight that caused the company a loss
- Corporate assets were squandered through a wasteful transaction, such as a failed acquisition
- There was an accounting scandal resulting from a misstatement of financial information
Not only does a successful shareholder derivative lawsuit lead to compensation for the company itself, but it may also result in important changes that can help in the long-term. Settlements may involve corporate reform that can not only keep this conduct from happening again, but can also improve director and officer oversight. Accordingly, shareholder derivative lawsuits are aimed at making the company whole and strengthening it for the long term.
When You May File a Securities Class Action Lawsuit
Investors who have lost money may file securities class action cases against the company (as opposed to a lawsuit against the directors and officers) in the following circumstances:
- The company misled investors about financial information, such as earnings or liabilities
- There was a major drop in the share price due to an adverse corporate event, such as poor earnings or a product failure
- The company failed to disclose material information, such as an investigation or liquidity issues
Securities class action lawsuits are intended to compensate investors for the losses that they have suffered. Investors will be the ones who receive money from a settlement, as opposed to the company itself.
Some Cases May Support Both a Class Action and a Shareholder Derivative Lawsuit
As you can see, there is some overlap between shareholder derivative lawsuits and general securities litigation. For example, an accounting scandal has also caused direct shareholder losses that could be the subject of a lawsuit, both from the standpoint that it cost the company money and that it caused significant investor losses.
The line between the two lawsuits is that Securities litigation usually involves issues with disclosure, while shareholder derivative lawsuits involve failures of oversight. To be clear, there are some factual patterns in which financial statements may have included incorrect information due to improper corporate oversight. This failure can also result in a misstatement of financial data that can be the subject of a securities litigation case.
It is possible for there to be parallel shareholder derivative and securities litigation cases. Both the company and shareholders can be the victims of corporate misdeeds. These cases may proceed in tandem, as there are common issues between the two of them. One attorney may file both a securities class action case and a shareholder derivative lawsuit. These cases could proceed at the same time. It may even be for the benefit of investors because there are both efficiencies that can be achieved, and one lawsuit may be used to leverage the other.
Contact a National Securities Litigation Law Firm
Whether you are an investor who has lost money due to a lack of proper disclosure, or you are seeking to act on behalf of the company, the national securities class action lawyers at Federman & Sherwood can represent you in a lawsuit. Schedule a free initial consultation with a securities litigation attorney by reaching out to us online or by calling us today at (800) 237-1277.