What’s Bothering Those Shareholder-Plaintiffs?

by Thomas Jones



This articles focuses on shareholder lawsuits against corporate officials in the U.S. The concern that many corporate managers and directors have expressed in recent years over the problem of shareholder litigation seems to be justified. The number of suits filed each year is increasing and the number of suits pending at each year's end has risen sharply. To determine just what corporate matters are of concern to shareholders who file suits, shareholder litigation records of 205 firm from the end of 1970 through the early months of 1977 were examined. The Securities Act of 1933, the Securities Exchange Act of 1934, and several state securities statutes were designed primarily to protect investors from unfair treatment in the stock market. Of the 163 securities complaints, 116 (or 71 percent) were filed by shareholders who had allegedly been damaged because the firm failed to disclose or misrepresented facts relevant to their investment decisions. Typically, these suits were filed by stockholders who bought the firm's shares between the time that a significant business setback was apparent to management and the time that the setback was publicly disclosed. Executives should be reminded that their liability for illegal acts may go far beyond the paltry fines assessed by law enforcement officials. Corporate officials should not, however consider all shareholder suits unavoidable occupational hazards. Many are biased on specific corporate misdeeds and can be avoided through careful attention to shareholder concerns in the corporate decision making process. So long as adequate attention is not given to these concerns shareholder suits will remain a prominent and unpleasant feature of corporate life.

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