Investors beware.  Often when investors suffer damages as the result of the recommendation and sale of defective financial products, where the stockbroker or their brokerage firm failed to conduct due diligence, or lacked a reasonably basis to recommend these securities, the issuer of the securities themselves are often subject to a class action lawsuit.

What is a Class Action Arbitration Lawsuit?

The class action device is an efficient and sometimes is the only mechanism where thousands of victims, with otherwise insufficient damages to be prosecuted individually, can band or join together putatively as a group, through a class representative, on behalf of others similarly situated, and attract competent counsel to pursue these claims as a class action, typically, in the securities context, in federal court.  In class actions, legal fees are determined, or at least approved by the Court, based upon, among other things, “lodestar,” the reasonable value of the lawyers collective time and efforts, plus a “multiplier” to reward them for taking the case on a contingent fee basis.

Class actions have their utility, and often, but for class actions, many investors would have no source for the recovery of their losses, because the company or issuer cooked the books or lied to everyone.  However, in fact, in many cases, information obtained in response to class action complaints, including answers and most typically, motions to dismiss, these same defendant issuers are quick to point out that the omitted information was disclosed but no one was paying attention and the firm selling these securities failed to conduct their due diligence or closely examine the offering materials.

Perhaps more importantly, in many cases, stockbrokers will blame the issuer for their own failure to conduct due diligence, and offer solace or the prospect of redemption to the injured investor by joining, or at least alluding to the prospect of the initiation of a class action.   The problem is that many such cases do not survive a motion to dismiss, and during the period in which the class action, if it survives works its way to settlement, or class certification in connection with any settlement, where the investor may only receive pennies on the dollar, the time to sue or bring a claim in arbitration the stockbroker or their employer, may have lapsed.

Problems are also encountered when class action settlements, (or even common fund settlements through a trustee or receiver), include as certain “released parties” the sellers or underwriters of these securities and preclude the investor, who failed to opt out of the class action, from bringing a claim against the stockbroker or broker-dealer who sold them the securities at issue.

Code of Arbitration Procedure: What is Rule 12204?

Rule 12204 of the Code of Arbitration Procedure provides that: 

(b) Any claim that is based upon the same facts and law, and involves the same defendants as in a court-certified class action or a putative class action, or that is ordered by a court for class-wide arbitration at a forum not sponsored by a self-regulatory organization, shall not be arbitrated under the Code, unless the party bringing the claim files with FINRA one of the following:

(1) a copy of a notice filed with the court in which the class action is pending that the party will not participate in the class action or in any recovery that may result from the class action, or has withdrawn from the class according to any conditions set by the court; or

(2) a notice that the party will not participate in the class action or in any recovery that may result from the class action.

(c) The Director will refer to a panel any dispute as to whether a claim is part of a class action, unless a party asks the court hearing the class action to resolve the dispute within 10 days of receiving notice that the Director has decided to refer the dispute to a panel.

Accordingly, investors are well advised to consult with counsel as to whether they should participate and be bound by a securities class action, or if the facts support a claim against the stockbroker and brokerage firm, or securities broker-dealer, that recommended or underwrote the issuance of the securities at issue based upon their sales practices, the failure to conduct due diligence, or the recommendation of unsuitable securities and other misconduct.

Guiliano Law Group

Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.