The selection of a good securities law firm is one of the most important decisions institutional and individual investors must make when deciding to pursue shareholder class action litigation. Often times there are tens, if not, hundreds of millions of dollars of losses on the line and choosing the right law firm is just as important as the underlying case. Investors should look at a law firm’s experience and knowledge, monitoring abilities, recommendations, resources, and record of success recovering for their clients when making their selection.
An investor-plaintiff is limited to being a lead plaintiff in no more than five securities class actions during any three-year period.[1] Given the limited number of securities class actions an investor-plaintiff may participate in as the lead plaintiff during a three-year period, it is critically important to choose the right law firm.
While securities law is a niche practice for plaintiffs’ attorneys, after the passage of the Private Securities Litigation Reform Act (“PSLRA”) in 1995, the number of law firms specializing in securities work has narrowed significantly. This has led to approximately two dozen firms, nationally, including Lowey Dannenberg, that specialize in this type of work.
The following factors can help investors choose the right law firm:
Experience and Knowledge
One of the most important factors when evaluating a securities law firm is that law firm’s prior experience prosecuting securities class actions and their knowledge of the federal securities laws. While the PSLRA limits the number of times an investor may be a lead plaintiff it does not limit the number of times a law firm can serve as counsel for lead plaintiffs. A law firm should have extensive experience successfully bringing and settling securities class actions in order to effectively represent investors.
With the passage of the PSLRA, surviving a motion to dismiss became ever more critical. The PSLRA has raised the pleading standards in three specific ways—(1) false statements must be pled “with particularity;”[2](2) the pleading must create a “strong inference” of scienter;[3] and plaintiff must allege loss causation.[4] Choosing a law firm steeped in the knowledge and understanding of the federal securities laws as well as drafting pleadings and briefs that can survive a motion to dismiss are critical to an investor’s success in a case.
Monitoring Abilities
In order to effectively represent investors, a law firm must have access and knowledge of that investor’s respective holdings and transactions in order to understand their potential losses. The PSLRA requires the court to select as lead plaintiff the plaintiff-investor who “has the largest financial interest in the relief sought by the class,”[5] essentially granting them the right to prosecute that case on investors’ behalf. Thus, an investor-plaintiff should choose a law firm that has the necessary resources, software, and staffing to effectively monitor their portfolio to see when a certain stock may drop and to accordingly monitor the news and financial markets to see what may have caused it. The PSLRA provides a 90-day window for investor-plaintiffs to file an application for lead plaintiff after the first filed case, so timely and effective monitoring capabilities are critical.[6]
Recommendations
Not every first-filed securities class action is a winner. The facts of each case are different and the heightened pleading requirements of the PSLRA provides a substantial hurdle for plaintiffs. Choosing the right securities law firm is often dependent upon the advice they provide to investors. Even though there may be a stock drop and company misstatements, the facts might not always be in a plaintiffs’ favor. Often times securities class actions can be lawyer-driven litigation and investors should carefully scrutinize the recommendations of counsel. A good securities law firm should provide a recommendation that carefully weighs the strengths and weaknesses of the case and outlines the possible litigation pitfalls. Sometimes the best recommendation a securities law firm can give to an investor is to decline filing an application for lead plaintiff.
Resources
Securities class actions can be complex, lengthy, and expensive endeavors. Often, they take years to resolve with hundreds of attorney hours expended, involve substantial discovery costs involving millions of pages of document review, and require costly investigators and experts. A good securities law firm should have the requisite attorney manpower and financial resources to be able to see the case to fruition.
Record of Success
A securities law firm worth its weight in gold is one that at the end of the day delivers results to its investor-clients—whether through achieving a substantial class recovery or through injunctively enabling corporate governance reform. Investors should historically look at the size and scope of the recoveries that a securities law firm has achieved when making its selection.
Conclusion
The qualities that make a good securities law firm is akin to what makes any good law firm. However, given the niche area of the law which requires an in-depth appreciation of the federal securities laws, and with so much financially at stake, investors should carefully choose their counsel based on who has a proven track record of success.
About Lowey Dannenberg
Since the 1960’s, Lowey Dannenberg has successfully prosecuted violations of state or federal securities laws and common law claims for breaches of fiduciary duty or fraud. Lowey recovered billions of dollars for investors. Lowey represents clients in cases involving financial fraud, auction rate securities, options backdating, Ponzi schemes, challenges to unfair mergers and tender offers, statutory appraisal proceedings, proxy contests and election irregularities, failed corporate governance, stockholder agreement disputes, and customer/brokerage firm arbitration proceedings.
Lowey has been a leader in the securities litigation field for more than 50 years, filing some of the first ever class actions on behalf of investors impacted by violations of the securities laws. Courts recognize these skills, appointing Lowey’s securities litigation attorneys as lead counsel in several recent securities class actions including:
- In re Kirkland Lake Gold Ltd. Securities Litigation, 20-cv-04953 (S.D.N.Y.);
- In re FuboTv Inc. Securities Litigation, 21-cv-1412 (S.D.N.Y.); and
- Jedrzejczyk v. Skillz Inc.,21-cv-03405 (N.D. Cal.).
Securities class actions are critical to protecting the rights of injured shareholders and effectuating responsible corporate governance. Lowey Dannenberg is well equipped to investigate and bring shareholder class action litigation on behalf of affected investors. If you wish to speak to a member of Lowey Dannenberg’s securities practice group please feel free to reach out Andrea Farah (afarah@lowey.com) or Anthony M. Christina (achristina@lowey.com).
[1] 15 U.S.C. § 78u-4(a)(3)(B)(vi).
[2] 15 U.S.C. § 78u-4(b)(1)(B).
[3] 15 U.S.C. § 78u-4(b)(2)(A).
[4] 15 U.S.C. § 78u-4(b)(4).
[5] 15 U.S.C. § 78u-4(a)(3)(B)(iii)(I)(bb).
[6] 15 U.S.C. § 78u-4(a)(3)(B)(i).