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10 Warning Signs
you may have a Problem with your stockbroker, financial planner or investment advisor.

  1. You lose more money than you thought you were risking.

  2. Investment losses negatively impact your retirement or or lifestyle

  3. Your broker won't return your calls

  4. Your broker is good at telling you what to buy, but not what to sell

  5. You are losing money in an IRA or retirement account

  6. Your broker has more excuses than ideas

  7. Your broker suggests an annuity for your IRA account

  8. "Risk" is never part of the conversation

  9. Your broker says it's "safe", but your gut says differently

  10. Your "investment professional" loses a lifetime of your savings

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Will Class Action Settlements
Recover My Investing Losses?

If you are thinking about waiting out a class action rather than filing your own claim in arbitration, against your broker dealer, you should read about this recent class action award.

In truth, class actions are great for two out of the three parties involved, namely the defendants and the attorneys. The clients / victims end up not much better off, to speak of, than if they did nothing.

On average our clients obtain settlements in the 30-70 cents on the dollar range, and sometimes all their losses are returned to them. Class actions result in awards of generally less than 10 cents on the dollar.

Read this article and find out why.

McPhail v. First Command Financial Services, Inc., No. 05cv179-IEG-JMA, 2009 U.S. Dist. LEXIS 26544 (S.D. Cal., 3/30/09). Class Actions, Effect of (Settlement Fairness; Objectors) * FRCP (Rule 23 “Attorney Fees”).

A determination of whether a class action settlement is fair and reasonable is based on, among other things, 1) the strength and risks of the plaintiffs’ case; 2) the amount offered in settlement; 3) the extent of discovery completed and the stage of the proceedings; and 4) the reaction of the class members.

Plaintiffs brought a securities fraud class action against defendants seeking $175 million in damages. After the claim was certified as a class action and after extensive discovery and appeals to the Ninth Circuit and Supreme Court, the matter was settled for $12 million, including $3.5 million in attorney fees for plaintiffs’ counsel. The parties now seek court approval of the settlement. There are five objectors. The settlement is approved.

First, the Court examines the strength of plaintiffs’ case. It notes the strong defense asserted, to wit, that there were no misrepresentations, that the commission charges which gave rise to the suit actually worked to the advantage of the class members, and that there was no reliance on the claimed misrepresentations.

Next, the Court assesses the risk of collecting a full recovery. It notes that defendants have available assets of only $30 million to $60 million, which inherently limits the total funds available to satisfy a judgment. Given these reduced assets, the settlement is approximately 20 to 40% of the maximum recoverable judgment. A $175 million judgment would force the defendants into bankruptcy, delaying and limiting plaintiffs’ recovery.

Finally, class counsel rated the risk of prevailing at no less than 50%. Thus, $12 million today is worth more than a 50% chance of recovering $30 million or less after three to five years of appeals or bankruptcy proceedings. The settlement amount also falls within range of similar settlements in the Ninth Circuit and it compares favorably to a $12 million SEC settlement with closed account holders in another case involving defendants. The settlement is also the result of extensive litigation and negotiation. The class was certified and, at the time of settlement, the parties were finishing expert discovery and class counsel was preparing for trial.

The reaction of the class members also favors settlement. Class members timely submitted 60,515 claims out of 207,412 potential claims, representing 29.18% of the entire class. This rate is roughly equal to the claims rate experienced in the settlement of the SEC action. In addition, there were only five objectors and, in four cases, it was the view of the objector that plaintiffs did not have a viable cause of action. Thus, there was only one real objection to the amount of the settlement.

Finally, the Court turns to the amount of the attorney fees contained in the settlement and it approves the amount that was negotiated. In doing so, the Court evaluates five factors to determine if the fees are reasonable: 1) the results achieved; 2) the risk of litigation; 3) the skill required and the quality of the work; 4) the contingent nature of the fee and the financial burden carried by counsel; and 5) fee awards made in similar cases. All of these factors weigh in favor of approving the requested fee.

The result achieved, a 7% recovery of the estimated damages, falls within the range of typical recoveries in complex securities class actions. In similar cases, the Ninth Circuit and its associated district courts have approved fees of nearly 30% of the fund. In addition, the proposed attorneys’ fee award is less than class counsel’s lodestar calculation, buttressing the court’s finding of reasonableness. In the instant case, class counsel expended more than 11,592 hours prosecuting the action on behalf of the class. These hours, when multiplied by class counsel’s customary hourly rates, corresponds to a total lodestar amount of more than $4.8 million. (P. Dubow) (SLC Ref. No. 2009-15-06)

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