How to Get Revenge on Wall Street

"The advantage to class-actions is that you can sit back as an investor and do nothing. You risk nothing because you haven't put any money or time into the litigation," said Rick Ryder, editor of the Securities Arbitration Commentator. "It's a good lazy man's process."

Mountain of Documents

Arbitration, by contrast, often is a drawn-out process that can involve days of testimony and require an investor to produce a mountain of documents to support a claim. Worst of all, if the damages incurred by an investor aren't sizeable, most lawyers won't take your case -- no matter how meritorious it might be.

But statistics gathered by Ryder and others show that if an investor has a good claim against an analyst or broker, he or she will likely fare better in arbitration than a class-action. In arbitration, investors tend to get back anywhere from 50% to 60% of their out-of-pocket losses in cases that result in either a settlement or an award. By contrast, the most investors in a class-action can hope to receive is about 5% of their actual losses.

One reason investors don't fair as well in class-action litigation has a lot to do with the impersonal nature of most shareholder litigation. Legal experts say that since plaintiffs' lawyers have little or no contact with the investors they represent, attorneys have little incentive to negotiate more lucrative settlements.

The arms-length nature of most class-action cases is one reason many mass consumer suits often don't return much in the way of cash. The settlements in those lawsuits often require manufacturers to provide consumers with coupons to buy more of the very same product they are often suing over.

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