A 10b-5 class action is a type of securities fraud class action lawsuit. It is filed against a company or individual who has made false or misleading statements in order to sell securities. The plaintiffs in a 10b-5 class action are typically investors who have lost money because of the defendant’s fraud. The Securities and Exchange Commission (SEC) has a rule, Rule 10b-5, which prohibits securities fraud. This rule is the basis for many 10b-5 class action lawsuits. In order to prove securities fraud, the plaintiffs must show that the defendant made a material misstatement or omission in order to sell securities. The plaintiffs in a 10b-5 class action are typically seeking to recover their losses. They may also be seeking punitive damages. Punitive damages are designed to punish the defendant and deter future securities fraud. 10b-5 class action lawsuits are complex and can be very expensive to litigate. They often take years to resolve. If you have lost money because of securities fraud, you should speak to a lawyer to see if you have a case. Also, an economist can assist you with calculating the damages.
There are many different types of 10b-5 class actions, but some of the most common include:
1. Misrepresentation: This type of class action occurs when a company or individual makes false or misleading statements in order to sell a security.
2. Insider Trading: This type of class action occurs when a company or individual trades a security while in possession of material, non-public information.
3. Fraudulent Concealment: This type of class action occurs when a company or individual fails to disclose material, negative information about a security.
4. Manipulation: This type of class action occurs when a company or individual artificially affects the price of a security through manipulation.
5. Mismanagement: This type of class action occurs when a company or individual mismanages a security, leading to losses for investors.
Some examples of large securities class action lawsuits that have been filed in the past include:
- In re Enron Corp. Securities, Derivative, and “ERISA” Litigation: This class action, which was filed in 2001, involved claims by investors who had lost money due to the collapse of the energy company Enron. The lawsuit resulted in a settlement of more than $7 billion.
- In re WorldCom, Inc. Securities Litigation: This class action, which was filed in 2002, involved claims by investors who had lost money due to the collapse of the telecommunications company WorldCom. The lawsuit resulted in a settlement of more than $2.25 billion.
- In re Lehman Brothers Securities and ERISA Litigation: This class action, which was filed in 2008, involved claims by investors who had lost money due to the collapse of the investment bank Lehman Brothers. The lawsuit resulted in a settlement of more than $2 billion.
The largest securities class action in history, as the size of a securities class action measured by the amount of damages sought, may see a new record called (FTX).
According to the initial complaint and the amended complaint allege that from at least May 2019 through November 11, 2022, Bankman-Fried controlled both FTX.com, a centralized digital asset derivative trading platform, and Alameda, a trading firm that operated as a primary market maker on FTX. As charged, FTX promoted itself as “the safest and easiest way to buy and sell crypto” and represented that customers’ assets, including both fiat and digital assets including bitcoin and ether, were held in “custody” by FTX and segregated from FTX’s own assets. To the contrary, FTX customer assets were routinely accepted and held by Alameda and commingled with Alameda’s funds. Bankman-Fried, Ellison, and Wang engaged in a fraudulent scheme to misappropriate FTX customer assets for use by Alameda and by FTX and Alameda executives, including luxury real estate purchases, political contributions, and high-risk, illiquid digital asset industry investments. The amended complaint further alleges that, at Bankman-Fried’s direction, FTX employees including Wang created features in the FTX code that favored Alameda and allowed it to execute transactions even when it did not have sufficient funds available, including an “allow negative flag” and effectively limitless line of credit that allowed Alameda to withdraw billions of dollars in customer assets from FTX. These features were not disclosed to the public.
In its continuing litigation against the defendants, the CFTC seeks restitution, disgorgement, civil monetary penalties, permanent trading and registration bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged.
The CFTC cautions that orders requiring repayment of funds to victims may not always result in the recovery of lost money because the wrongdoers may not have sufficient funds or assets.
