UCLA Journal of Scholarly Perspectives Title Securities Class Actions and Bankrupt Companies Author Publication Date Professor of Law [ 90 ] Scholarly Perspectives Scholarly Perspectives [ 91 ] SECURITIES CLASS ACTIONS AND BANKRUPT COMPANIES*

James Park, James Park, Ucla, James Park
2014 Journal of Scholarly Perspectives   unpublished
W hen targeting temporary stock price declines, securities class actions often create unwarranted costs for otherwise healthy companies. Lawsuits have questionable value when directed at fluctuations that reflect market overreaction to short-term developments. However, securities class action attorneys, who receive a substantial percentage of any recovery, have significant monetary incentives to link such fluctuations to a theory of securities fraud. Securities class actions directed at frauds
more » ... nvolving large public companies that suddenly filed for bankruptcy, such as Enron and WorldCom, present a powerful counterexample to this critical account. The stock prices of these companies did not just fluctuate and recover, they precipitously and completely collapsed after revelations that financial statements were overstated by billions of dollars. Though shareholders typically are wiped out in bankruptcy, Enron and WorldCom investors recovered billions of dollars from companies that essentially were frauds through securities class actions. 1