Fewer Investors Opt To Take The Money And Run

It used to be that big companies slapped with huge securities class actions would make their legal troubles go away by offering a generous settlement. But that's changing. Business Week reports that a growing number of plaintiffs are eager to make private deals with the companies they sue. "There's no doubt that the numbers are up," Joseph Grundfest of Stanford Law School told Business Week. In the most recent example, Janus Capital, which holds more than a 10% stake in Time Warner, reportedly has decided to skip its share of a proposed $2.4 billion securities class action settlement and hop into court with hopes of making a better deal in its own suit against the media giant. In another example, more than 20% of the 284 investors who sued KPMG International over tax shelters have rejected participation in a $195 million settlement.

"Why should investors sit passively by and take a couple of cents on a the dollar," famed securities plaintiffs' lawyer William Lerach of the San Diego law firm Lerach Coughlin Stoia Geller Rudman & Robbins said in the Business Week article. "This is an extraordinarily powerful tactical weapon."

Extraordinary, maybe. But it's not for the faint-hearted or shallow-pocketed, which is why investors like Janus could chance it. In a class action, fees charges are spread over a larger group of people, and the final reward –either through settlement or victory – tends to be larger but spread out over the group. An investor that chooses to go it alone in litigation, however, may reap a higher reward or nothing at all – on top of massive expenses.