Eli5: Shareholder class action

103 views

Why do shareholders sue a company that they ostensibly own?

In: 1

4 Answers

Anonymous 0 Comments

Because they think that the company’s mismanagement/poor decision making/potentially illegal operations caused them to lose money that otherwise would not have been lost.

E.g. a company knows that earnings are going to go down by a lot (and more than previously indicated), but doesn’t tell the market/shareholders. Then eventually they tell the market, it’s bad news and the shares go down a long way, maybe more than what would have happened otherwise, and they’ve not told shareholders because of how bad everything is. Effectively keeping things secret so keep the share price from falling. (This is all a theoretical example but it could be something like this).

A class action lawyer will contact shareholders and put a case together effectively looking to be paid damages because shareholders were not treated fairly/kept in the loop as they should have been and loss was caused as a result.

It’s a pretty murky world, drags on in court for ages, and most of the time very little comes back to shareholders.

Anonymous 0 Comments

Because they think that the company’s mismanagement/poor decision making/potentially illegal operations caused them to lose money that otherwise would not have been lost.

E.g. a company knows that earnings are going to go down by a lot (and more than previously indicated), but doesn’t tell the market/shareholders. Then eventually they tell the market, it’s bad news and the shares go down a long way, maybe more than what would have happened otherwise, and they’ve not told shareholders because of how bad everything is. Effectively keeping things secret so keep the share price from falling. (This is all a theoretical example but it could be something like this).

A class action lawyer will contact shareholders and put a case together effectively looking to be paid damages because shareholders were not treated fairly/kept in the loop as they should have been and loss was caused as a result.

It’s a pretty murky world, drags on in court for ages, and most of the time very little comes back to shareholders.

Anonymous 0 Comments

The board of directors and the CEO have what is called a “fiduciary responsibility” to the shareholders. Long story short, they’re obligated to hold the shareholders best interests in mind when making decisions about the company.

This makes it so that if they make decisions that they personally profit from to the detriment of the company then they are in breach of their duty and can be held liable. (like giving “sweetheart” deals to other companies they own, like say they need to buy steel for a manufacturing process so the CEO buys it from a company they have a large financial stake in for twice the market rate for the steel)

Class Action lawsuits are one of the methods used for holding them liable for failing in their fiduciary duty.

Anonymous 0 Comments

The board of directors and the CEO have what is called a “fiduciary responsibility” to the shareholders. Long story short, they’re obligated to hold the shareholders best interests in mind when making decisions about the company.

This makes it so that if they make decisions that they personally profit from to the detriment of the company then they are in breach of their duty and can be held liable. (like giving “sweetheart” deals to other companies they own, like say they need to buy steel for a manufacturing process so the CEO buys it from a company they have a large financial stake in for twice the market rate for the steel)

Class Action lawsuits are one of the methods used for holding them liable for failing in their fiduciary duty.