The Importance of Class Actions

October 12, 2011  |  Other

Chances are, the last time you got a direct mail notification about a class action, you threw it away. And why wouldn’t you? Why bother with signing a totally indiscernible document that, at best, will net you a hundred bucks?

Besides – class actions don’t seem to have much impact. After all, the “issues” are usually small change items and the lawyers make off with all the money – right?

Wrong.

A recent study by the finance and accounting departments of the business schools at Rutgers University and Emory University found that class action lawsuits are a very effective way to do what many Americans are focused on right now: make corporations play fair. Specifically, this study found not only that class actions are a powerful deterrent for corporate wrongdoing, but also that they actually accomplish more than Securities and Exchange Commission (SEC) action, recovering on average twice as much money from wrongdoers, according to Dr. Simi Kedia, Ph.D., MBA, Associate Professor of Finance at Rutgers University.

The 2011 study, a working paper currently being circulated for comment before publication, measured the effectiveness of “public” enforcement by the SEC versus “private” enforcement through class action lawsuits. While the study’s findings are reason enough to pay attention to those annoying class action notices, it’s worth noting that this is hardly the first bit of research to tout the merits of the often-maligned class action. A similar 2006 study also validated the efficacy of class actions through empirical research.

We agree with reporter Gretchen Morgenson of The New York Times. Class actions and other types of private lawsuits are especially critical now.

In these times of public discontent with government and big business, class actions are the peaceful hammer we all wield to make the constructive and important changes that America so desperately needs.

We hope you’ll remember that the next time you get a notice.

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