Congress has failed to reduce securities class actions

How much gets paid out in securities class action lawsuits? And how come there are more than ever, notwithstanding Congress's attempts to rein them in with the Private Securities Litigation Reform Act of 1995?

These and other vexed issues came before a symposium of class actions in Kansas City.

Securities class actions are at least as plentiful as before and, generally, generating much bigger payouts.

John C. Coffee, who teaches securities law at Columbia University Law School, noted that verdicts and settlements over the past few years have paid out no more than 3 cents for every dollar of lost market capitalization resulting from a defendant’s alleged fraud. He said the most culpable parties — the corporate insiders responsible for the allegedly fraudulent conduct — typically don’t pay out a dime because they were either covered by directors and officers insurance or else reimbursed by their employers.

Coffee suggested realigning financial incentives — such as allowing plaintiffs’ attorneys to get a greater percentage of any recovery against insiders than against the corporation itself — to better target the real malefactors and thus provide a real deterrent to corporate misconduct. He also noted that many securities class actions merely succeed in transferring money from the left pocket to the right pocket, given that the suing shareholders often overlap with those who own the company when it’s sued.