Ask TheStreet: Shareholder Suits

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I've never understood what happens to the money from investor lawsuits against companies. What happens to the money? How do I get my share? And am I being ripped off twice, once by the companies and then by the attorneys? Thanks, D.M.

Gregg Greenberg: There are no money-back guarantees on Wall Street. If you invest in a stock that goes sour, then you get a tax loss and a learning experience. You don't get a refund.

Thus, make sure you're cautious with any solicitations from law firms that promise you money just because your stock went down. At some point, they all do, and it's rarely because of illegal activity.

That said, if you invest in a company and it turns out to be fraudulent along the lines of WorldCom or Enron, then there is a remote chance you can get some money back by participating in a class-action lawsuit. Just don't expect much for your hassle, even if the company was as guilty as those two criminal enterprises.

One can only imagine how clogged the U.S. court system would be if thousands of injured investors each lined up to sue a company alleged to have broken the law. Hence, class-action suits make the process easier by rolling all those little lawsuits into one big mega-case under the name of a single lead plaintiff.

Of course, the lead plaintiff will sue not only the company responsible but all of its enablers, like its investment banks and accountants, as well. That's because in cases like WorldCom or Enron, companies may go bankrupt, so the money is gone. And you can't squeeze blood or money from a stone!

The class-action lawyers can, however, squeeze it from other deep-pocketed concerns that would rather settle the cases and just get on with business. In May 2004, for example, CitigroupC, WorldCom's main Wall Street backer, settled a class-action suit led by New York State Comptroller Alan Hevesi, agreeing to pay $2.65 billion to investors.