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securities class actions, fund distributions, settlements


Most class action securities cases result in a settlement where the parties agree on a defined amount of money to be placed in a fund for distribution to eligible beneficiaries. Although the size of the fund and the losses suffered by eligible beneficiaries are defined, the number of potential beneficiaries who decide not to participate in the settlement by opting out and the number and value of losses eventually claimed by those eligible beneficiaries are not known until long after the settlement amount has been established. In any closed-end fund, like the securities class action settlements, there is the potential for a "Goldilocks" dilemma ―the fund may be too large or too small for the claims being made, not ―just right. The ensuing tensions created by this mismatch between funds available and claims on those funds can be one of the most significant problems in any settlement fund distribution. The ability of courts, special masters, and claims administrators to cope with this mismatch is critical to the success of the distribution process. Courts, lawyers, academics, and claims administrators have generally accepted the traditional approaches normally taken in securities class action distribution processes as appropriate under the circumstances. This Article presents several alternative approaches for coping with the mismatch dilemma that are worthy of consideration for incorporation in future distributions. The literature on distribution processes has given too little attention to the successes and failures in cases that have utilized non-traditional techniques, and it is likely that future distributions can benefit from these actual experiences. The following case studies in both securities and non-securities contexts illustrate the Goldilocks dilemmas that arise and discuss approaches that courts, lawyers, and claims administrators might take to ameliorate them in situations where there are too many opt-outs, too few claims, too many claims, too little money, or too much money.


(presented at the Institute for Law and Economic Policy Symposium: Compensation for Plaintiffs in Mass Securities Litigation)

Library of Congress Subject Headings

Compromise (Law), Securities (Law), Class actions (Civil procedure)