It is not uncommon for FINRA to receive calls from investors about a securities class action lawsuit, especially on the heels of a large settlement. Based on questions we receive from investors, here are eight things you should know about securities class actions involving investors.
Accepting restitution or compensation
through a FINRA regulatory settlement
does not waive your right to monetary
or other benefits through the courts,
arbitration or mediation.
1. Securities class action lawsuits occur in a court rather than a dispute resolution forum. A lawsuit is filed in federal or state court on behalf of a group, or class, of investors who bought or sold a company's securities within a specific timeframe, known as the class period. Often more than one similar case will be filed arising out of the same events. The investors generally claim to have suffered economic injury due to alleged violations of federal or state securities laws, and hope to obtain monetary and other damages suffered as a result of these violations. The case will typically have one or more named plaintiffs who filed the case, and if there are multiple cases the court typically appoints the lead plaintiff if and when it certifies the lawsuit as a class action.
2. Securities class action lawsuits differ from FINRA regulatory actions. In a securities class action lawsuit, the plaintiffs’ objective is to obtain monetary and other benefits directly for the members of the class. While FINRA regulatory actions sometimes result in monetary restitution to harmed investors, these actions serve other important purposes to protect investors and the markets. FINRA investigates potential securities violations and, when warranted, brings formal disciplinary actions against broker-dealer firms and their associated persons. FINRA has the authority to censure, fine, or suspend brokers and firms or to bar or expel them from the securities industry. We also make referrals to law enforcement agencies and other regulators. In 2017, FINRA ordered $27.9 million in restitution to harmed investors.
3. You are generally notified if you are part of a class. Notification to investors that are eligible to be part of a class typically follows a judge’s decision to certify the lawsuit as a class action. Notice is normally by mail to the address the company has on file for you as a shareholder and is typically sent by a law firm appointed by the court to handle the case. Once identified as part of the class, you generally do not have to take any action. Questions about the class action—including whether you are included (if you have not been notified)—should be directed to the law firm(s) handling the case.
4. You are not required to join in the class action. Some investors choose to opt out of a class action lawsuit. Generally, you must submit a written form stating that you agree to opt out of the class. Investors may choose an individual action over a class action lawsuit if they believe they will fare better through an individual claim or have a specific set of circumstances that sets them apart from the rest of a class.
5. If you receive a settlement from a FINRA enforcement action, you can still be part of a securities class action lawsuit. Accepting restitution or compensation through a FINRA regulatory settlement does not waive your right to monetary or other benefits through the courts, arbitration or mediation.
6. If you choose to pursue arbitration in lieu of being part of a class action, you may need to opt out of the class. Specifically, you must demonstrate that you will not also participate in the class or any recovery that may result from the class action, or that you have withdrawn from the class. FINRA rules provide that you cannot pursue a claim against a broker in arbitration if you remain part of a class action that is based upon the same facts and law and involves the same parties. FINRA rules also prohibit firms attempting to prevent investors from participating in judicial class actions by adding waiver language to customer account agreements.
7. Information about securities class action lawsuits is available online. To find out whether you may be included in a class action relating to your securities investment, you can visit the website of the Securities Class Action Clearinghouse, which covers all securities class actions filed in federal court after 1995.
8. FINRA cannot provide advice or recommendations to investors about securities class action lawsuits. FINRA can’t advise you about whether or not you should participate in a securities class action lawsuit or accept any money that might be offered as part of a class action settlement. You may find it useful to consult with an attorney, in which case the American Bar Association can help you find a qualified lawyer in your state, and the Public Investors Arbitration Bar Association can help you find an attorney who specializes in representing investors in disputes with the securities industry.