Class Actions

What is a Class Action?

A Class Action is an action that arises when an investor, or a group of investors, lose funds in the stock market as a result of an alleged fraud or an omission by a corporation. The Class Action aims to recover any loss, and is aimed at company stocks which are listed on any of the US Exchanges. Each case needs to be dealt with on a case by case basis, due to the complexity and individual circumstances of each class action.

How do Class Actions benefit Pension Schemes?

Trustees of pension schemes have a responsibility to look after the members’ best interests, and to ensure that the investment policy is maintained and reviewed. It is therefore important that trustees understand that if any of the underlying investments of their pension fund are in companies which have, for whatever reason, committed fraud or have provided misleading information which has had a detrimental impact on the value of the investment. If such an event has occurred, the trustees of the scheme should become involved in a class action to recover any loss and possible compensation.

How does it work?

There are three common types of securities fraud committed by corporations which could impact on the investments held within pension schemes.

Accounting Fraud

Companies in America are required to file accurate financial statements on a quarterly basis. There have been revelations that companies have issued financial results which were incorrect and have led to restatements. Such disclosures are almost always followed by a sudden drop in the company’s share price.

Prospectus Fraud

Companies that raise capital via a registration statement/prospectus filed with the Securities Exchange Commission are required to disclose all material information. Sometimes, companies may conceal information to raise capital.

Projections Fraud

This occurs when assurances by senior officers of the company are made to the public about the level of revenue and profit a company will make, while knowing that the projections are impossible to achieve. Therefore, the company shares trade at an artificially high price.