Go Suit Yourself?

Michael Sheehan

Physician's Money Digest, January31 2005, Volume 12, Issue 2

When shareholders sue a companythat has cooked its books, who wins? Theanswer is often nobody, except thelawyers. When a company loses a lawsuitand pays up, the money generally comesout of the current shareholders'pockets,many of whom are likely to be among theclass that brought the suit in the firstplace. Even when an insurance companypays up or the judgment includes a thirdparty (eg, a bank), investors who ownshares in large cap mutual funds are likelyto end up paying the tab. Despite that,class-action securities fraud suits are agrowing industry, bringing in an averageof $21 million per settlement in 2003.