The WALL STREET JOURNAL had an interesting opinion
piece by Gerald Walpin on Jan. 6, 2015.
The title “How to Stop a Class-Action Scam” undoubtedly caught the
attention of most investors. The column
noted that, “If you own any stock, you know the frustration of getting a notice
announcing settlement of a lawsuit, commenced by a lawyer on behalf of a class
composed of all shareholders—you included.”
The article points out that generally the members of
the class received little or nothing as a result of the suit. At the same time, the members of the class
have to pay the lawyers filing the suit millions of dollars in fees. The class gets to pay for suing itself. In essence, the class-action racket is set up
to add injury to insult.
The author talks about the class-action abuse in
general terms and then goes on to use a specific example: “Case in point: On
Nov. 10, 2014, I received a class-settlement notice regarding my Verizon
stock.” Verizon was one of the stocks
identified as a part of the “Widows and Orphans Portfolio” in a posting at the
beginning of 2011. It is a part of a
core portfolio that has been discussed a number of times since then.
It is no accident that the suit was filed against
the type of company that would be in a portfolio for widows and orphans. Large-cap, widely-held stocks are the perfect
target for these class-action criminals.
The management, constrained by their fiduciary obligation to their
stockholders, will settle in order to avoid a costly defense. In addition, the wide dispersion of stocks
ensures that it is unlikely any single shareholder will find the expense of
objecting to the outrageous legal fees of the class-action lawyers worth the
cost of intervening. In short, widows
and orphans make good targets for this extortion racket.
As someone who has managed a portfolio of common
stocks for many years, The Hedged Economist has probably been defined as a
class member a couple of dozen times. The experience has provided an
opportunity to read through many class-action notifications. It is amazing how totally corrupt and
absolutely imbecilic the process is. In
fact, it is so bad that it is difficult to figure out where to start in terms
of any thoughts of how it could be reformed.
What is worse is that the process has been set up so
that an individual is unable to protect oneself. The simple solution would be if government,
in its infinite wisdom, would recognize that perhaps individuals are able to
judge whether they are victims of the abuse the class-action lawsuit supposedly
addresses. However, instead the
government has set things up in such a manner to make it inconvenient to avoid
being defined as a member of the class that has been selected to pay the
class-action lawyers their ransom. In fact, in some instances opting out of the lawsuit requires providing confidential information that an investor may reasonably choose not to disclose. Clearly, disclosing information such as Social Security number, brokerage account number, name and address (despite the fact that they have already mailed items to you) is not something that should be undertaken lightly. Especially, when the disclosure is to individuals who have demonstrated that they are probably crooks willing to undertake frivolous lawsuits for personal gain. At a minimum, they have demonstrated that they are not acting in your interest, and disclosing information to such individuals is more likely to result in harm than benefit.
Since our elected officials have known about this
corruption of our legal system for years, one would be foolish to assume that
they will address it. One can hope,
however, that the consumer watchdog organization for financial products created
as a result of the Dodd-Frank legislation would recognize that stocks are a
financial product and stockholders should be protected from this sort of
extortion.
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