What is the difference between a securities class action and a shareholder derivative suit?
A securities fraud class action is brought by shareholders against the corporation, its officers and directors and others, seeking to recover money for persons who were defrauded into buying (or sometimes selling) their shares. In contrast, a shareholder derivative action is brought on the corporation’s behalf against people who have damaged the corporation itself, to make the corporation whole. It is brought by a shareholder who ‘steps into the shoes’ of the corporation to assert a claim on the corporation’s behalf, usually against the officers and directors of the corporation, but sometimes against others, such as the corporation’s accountants. This is done when the corporation has been harmed, such as by being exposed to massive liability for securities fraud, or criminal penalties, and the wrongdoers are still in control of the corporation. They will not sue themselves, and the shareholders’ equity is put at risk. In this situation, the courts permit the shareholders to protect the
