The Lemon Fool

posting here because it is a legal matter but I am mostly concerned about the implications for investors.
I have just read a piece on the Bloomberg website about the legal cases being brought against VW in regard to the DIesel emissions scandal and the use of "defeat devices" to fool national emissions standards.

http://www.bloomberg.com/news/features/ ... or-nothing


There is also a case being brought by shareholders against Tesco because of an accounting fraud a few years ago, and in this litigious age probably more.
It has always seemed to me to be self- defeating for shareholders to bring a case against a company in which they hold shares, on the very obvious grounds that any compensation will be balanced out by the loss in value of the shares they hold.
What am I missing?
In addition, why if it is proven that the shareholders bringing the case have been misled and receive compensation why shouldn' t all other shareholders be similarly recompensed-is it another case of the benefit of the law being only available to those with the financial wherewithal to fund such cases?

casapinos wrote:It has always seemed to me to be self- defeating for shareholders to bring a case against a company in which they hold shares, on the very obvious grounds that any compensation will be balanced out by the loss in value of the shares they hold.
What am I missing?

The fact that it is the shareholders back when the company misbehaved who get compensated, but the shareholders now who lose value from their shareholdings. Especially for someone who sold the shares at a low following the revelation of the misbehaviour, trying to get compensation for their loss by taking part in a class action is anything but self-defeating...

casapinos wrote:In addition, why if it is proven that the shareholders bringing the case have been misled and receive compensation why shouldn' t all other shareholders be similarly recompensed-is it another case of the benefit of the law being only available to those with the financial wherewithal to fund such cases?

They are - if they jump through some bureaucratic hoops. The whole point of a class action is that it is a legal action on behalf of a whole class of people, who can all benefit from the settlement if one is achieved (or presumably judgement in favour of the shareholders, though I've never seen that happen). If there is a settlement, anyone they can trace who might be entitled to participate in the settlement is sent a claim form and instructions about how to fill it in, and also instructions about how to exclude oneself from the settlement. If you do neither, you are deemed to have agreed to the settlement (so you cannot take legal action subsequently about the matter) but not claimed any entitlement to it.

I've had a few such forms over the years - the only one I specifically remember is one about the Shell "reserves scandal" settlement, which IIRC had some EU involvement in it as well as US involvement.

Gengulphus

casapinos wrote:It has always seemed to me to be self- defeating for shareholders to bring a case against a company in which they hold shares, on the very obvious grounds that any compensation will be balanced out by the loss in value of the shares they hold.
What am I missing?

There are other motives for action other than pecuniary reward. Spite, revenge and cussedness for example.

Also: insurance.

DM