Securities Class Actions: Time to Fix Broken System

The National Law Journal recently published Securities Class Actions: Time to Fix Broken System, an opinion piece by defense counsel Daniel Small. The piece explains the rationale underpinning the existence of class actions and focuses on aspects of the system the author regards as broken. The piece is critical of the ability of the first “victim” in the court house to “help decide which [law] firm is lead counsel, help approve settlement and fee agreements and take other important actions.” The author suggests that 1995 amendments designed to minimize the perverse incentives created by the system suffered from a lack of regulatory oversight. The author cites events surrounding the sentencing of Seymour Lazar in support of his critique, but cautions against focusing on the wrongdoing of particular individuals or law firms if this would obscure systemic problems requiring attention.

Mr Small recommends systemic changes to securities class actions, which include the following: limiting the number of times one person (or family) can be a class representative; limiting class representatives to shareholders who satisfy stiffer requirements concerning their shareholding; requiring attorneys to sign the class representative certification; and limiting attorney fees.

The article is available here.