History (1998): Class Actions Suits

It’s become the newest sport for American attorneys: carefully review all statements made by executives at companies listed on the stock exchange, find one that doesn’t quite correspond to the ensuing reality, or where the lack of information provided may have resulted in a dip in share prices, and you’re in business.

The law firm has only to gather up a few plaintiffs, in other words, disgruntled shareholders, offer to represent them in court and promise a percentage of any eventual gains from a favorable decision. When the shareholders are in hand, draft up a press communique and distribute it widely in the hopes of drawing more plaintiffs to the case.

What’s most appalling about these cases is that they are often settled amicably out of court, since the defendant companies realize early on that it’s better to negotiate a reasonable pay-off then to become locked in to a legal battle that drags on and incurs heavy attorney’s fees and court costs.

Storage industry firms are especially affected by this phenomenon. And there are even law firms that specialize in this kind of action.

Berger & Montague PC proudly boast that they have recovered $1 billion for shareholders over the past 20 years. Milberg Weiss Bershad Hynes & Lerach LLP have done even better: $2 billion.

Naturally, shareholders ought to have recourse to protection against overoptimistic statements by corporate execs, particularly when they lead to more investment in shares that drop in value when economic reality catches up to exaggerated claims.

But at the moment in the US, it’s no longer a question of defending consumer rights-class, action suits have become a veritable industry in their own right.