Mellody's Math: Can You Sue Over Your Losses?

ByABC News
May 7, 2002, 2:58 PM

May 8 -- What can investors do to help recoup their stock market losses? This being America, one thing they can do is sue.

The door to shareholder class-action suits was opened way back in the early 1930s, when public companies were required by law to publicize their financial information, leaving shareholders free to dispute that information's accuracy and completeness.

In 1995, Congress passed legislation designed to curb frivolous suits. But shareholders looking to the justice system to help recoup their investment losses have since responded with numerous securities-related class actions.

In 2001 alone, 327 shareholder class actions were filed representing a 60 percent increase from 2000. Moreover, already this year, U.S. companies have paid out more than $1 billion in shareholder lawsuit settlements.

Enter the Attorneys

Shareholders who purchase securities and suffer losses do have recovery rights if they can prove corporate disclosures were inappropriate or incorrect. And big investors are no longer the only plaintiffs seeking reparations through the justice system. These days, the courts are becoming increasingly filled with investors big and small.

If you are one of these small investors with a claim against a corporation and feel like David taking on Goliath, here are a few stones to keep in your back pocket:

Arm Yourself with Information: Often, it is already too late for an investor to take action once information about a pending lawsuit becomes common knowledge. As such, shareholders need to stay aware of the ongoing business activities of companies in which they invest. This includes reading all shareholder information as well as scanning the business section daily to see if any personal holdings are front-page news. The Internet has made it possible for investors to access Web sites with basic information about ongoing lawsuits. For example, sites run by Stanford University's law school and private plaintiffs' firms offer comprehensive information about ongoing shareholder lawsuits.