Hedge Fund Primer: A Detailed Guide to Securities Class Action Lawsuits

Investor protection and fiduciary responsibility are considered two fundamental principles for the successful operation of securities markets in the United States. In case there are breaches of these fundamental principles, shareholders and institutional investors can opt for securities class action settlement recovery lawsuits as their last resort. When it comes to hedge funds, it is necessary to gain an understanding of the legal process, concepts, and trends of these legal actions, considering the size and scope of such settlements. This article guides one through the securities class action lawsuits concerning hedge funds.

Securities class action settlements

Securities class action settlements involve compensation to the harmed shareholders and investors. It is a lawsuit that is filed on behalf of a particular company’s investors or shareholders who have suffered a loss under securities laws. 

Now that these securities class actions are expensive to litigate individually, one or more shareholders file the lawsuit on behalf of the entire “class” of shareholders against the company, which has allegedly violated the country’s securities laws, causing harm to the class. Securities class action lawsuits are litigated in the United States federal and state courts.

Securities class action litigation process

The securities class action settlement recovery litigation process is complex and time-consuming. It can take three to seven years to carry out a multitude of stages and legal procedures. Usually, very few cases go to trial because judges have a history of awarding overly generous settlements to plaintiffs. Consequently, for settlement recovery cases that are not dismissed, a settlement is negotiated by the plaintiff and defense, which is further approved by the court. 

A Plan of Allocation specifies the method of calculating the damages and makes an individual eligible for receiving a prorated portion of the settlement. Furthermore, it is a claims administrator who validates claims and disburses settlement awards to an eligible person. 

Considerations concerning recognized loss, proration, and complex filing

The Plan of Allocation in the securities class action settlement recovery details a recognized loss. It is the amount that is calculated by applying the settlement rules to figure out the worth of the claim. It is rare for the recognized loss to correspond to an out-of-pocket loss, and oftentimes it exists despite profits in the real world. 

It is important to calculate the recognized loss because claimants need to confirm the loss number representing the settlement fund portion with the claims administrator before distribution to ensure the accuracy of settlement awards. 

Now that several considerations come into play, it can be complicated to calculate the recognized loss and fund proration accurately. These considerations are netted versus transactional summing, account versus subaccounts, FIFO versus LIFO, split options, derivatives, and more.

Conclusion 

With securities class action settlements frequently in the news and increased scrutiny in the hedge fund marketplace, many hedge fund companies opt to manage the settlement recovery process in-house. However, by doing so, they miss out on eligible settlement funds. Professional class action settlement recovery services help companies have a comprehensive securities class action recovery program in place, file claims on their behalf, and work closely with claims administrators to them eligible settlement funds.