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Published: October 2011
Class action lawsuits deter companies from financial wrongdoing, study finds
A study released by The Investor Advocate reports that the threat of class action lawsuits against corporations is more of a deterrent to corporate malfeasance than SEC enforcement action.
The study, conducted by professors at Emory and Rutgers Universities, measured the effectiveness of the two primary methods of federal securities regulatory and law enforcement: "public" enforcement by the Securities and Exchange Commission; and, "private" enforcement through securities class action lawsuits.
A recent story by the New York Times' Gretchen Morgenson reported on why private lawsuits are particularly important at a time when federal failure to enforce the law is considered one cause of our on-going financial-economic crisis and of public discontent with government:
The study also found that in cases where both the SEC and class action lawsuits take action, on average private lawsuits precede SEC action by 297 days, and that class actions recover twice as much money from wrongdoers than SEC actions.
For More Information
Read the study, entitled "The Deterrence Effects of SEC Enforcement and Class Action Litigation"
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