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Individual Arbitration or Class Action?

Members of a group or "class" of investors who suffer losses from the same cause sometimes have the option of either filing a class action lawsuit (pooling together a large number of victims' losses) or pursuing claims individually through FINRA arbitration. This is an important decision for investors as it could seriously influence the outcome of their case.

Securities class action lawsuits generally take three years or more to reach conclusion. The typical settlement is generally a small percentage of the overall claim amount and gets smaller as the size of the overall claim increases. A study by Cornerstone Research reveals that for the years 1996-2009, the median settlement amount as a percentage of claims was 3.4%; for claims over $500 million, the median percentage dropped to 1.9%. Because claims in class action suits tend to be large, thedefending firm has an incentive to devote a large amount of resources to fighting these cases and they can sometimes drag on for a decade or longer.

On the other hand, an individual FINRA arbitration is generally concluded in about 12 months and the typical percentage of damages recovered is substantially greater than the typical class action recovery. An individual action can also take into account important facts unique to the individual claimant that would get washed out in a large class action suit. Finally, in an individual action the claimant has full control over the progression of their case and does not have to reach an agreement with hundreds of other investors before making a decision to change strategies or reach a settlement.

Opting Out

If you are considering pursuing an individual claim through FINRA, it is important to remember to "opt out" out the related class action suit. Investors generally receive paperwork notifying them of a class action being filed with a fairly short deadline to reply; if they do not reply before this deadline, they will automatically be considered part of the class and lose the right to pursue an individual claim through FINRA.

Robert H. Rex, a partner at the law offices of Dickenson, Murphy Rex and Sloan PA, is dedicated to pursuing claims on behalf of investors and has practiced exclusively in the field of securities arbitration for decades. If you would like to explore the possibility of filing an individual claim through FINRA you may contact our firm for a free consultation.

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