Abstract:
The retail securities investor typically holds only a small stake in a listed security. As such, even when she has a compensable right for a securities wrong, the prosecution of the claim is not likely to be economically feasible. While a “class action” may potentially accumulate similar claims and render economical claims which are individually non-economical, securities class actions face a variety of obstacles. They range from information asymmetry issues and collective action problems to the uncertain liability for counter-party costs. These conspire to sap the investors’ willingness to fund the litigation. This article looks at the current disincentives to securities investors participating in a class action and examines the possible solutions to overcoming the current structural disincentives.