Study Finds that Many Bear Stearns Employees Should Opt Out of Class Actions

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Over the past six weeks or so, well-known class action law firms have filed numerous class action lawsuits on behalf of Bear Stearns employees. These lawsuits may cost Bear Stearns employees an opportunity to recover anything more than a fraction of actual losses.

the elevated percentage of investment loss recoveries in the opt-out cases

Based on a recently completed study, The Sherman Law Firm concluded that Bear Stearns employees with substantial losses stand to obtain far greater monetary recoveries by opting out of class actions and proceeding with individual lawsuits against the fallen investment bank.

Class Actions

Beginning on March 17, 2008, a number of prominent class action firms filed putative class action claims against Bear Stearns on behalf of Bear Stearns employees.

A class action is a special type of lawsuit in which a group of plaintiffs that share substantially similar legal claims against one or more defendants band together in a single lawsuit. Class actions are known as "representative actions," because one or more plaintiffs are actually named in the class action complaint. Along with their attorneys, these named plaintiffs pursue the case as representatives for an entire defined class (in this instance a class might consist of one or more categories of Bear Stearns employees).

Most class action claims settle. The end result, however, is that there often is not much money distributed to individual class members. In a 2006 article, stated: "Often being part of a class action lawsuit is not financially advantageous to an individual. Even though the defendant named in the case may be required to pay out a large sum of money, one individual who is part of the class action will only receive a small portion of that sum."

A study published by NERA Economic Consulting (NERA) supported the statement of NERA reported that the average settlement recovery in securities class actions in 2006 was only 2.2% of investor losses. Bear Stearns employees who suffered devastating losses told The Sherman Law Firm that they would be little helped by a class action settlement for 2.2% of aggregate investor losses.

"Opt out" cases

While class action claims against Bear Stearns have received a great deal of news coverage, articles on the right of Bear Stearns employees to opt out are nearly impossible to find. For this reason, it is not be surprising that many Bear Stearns employees are unaware of the right to opt out of class action litigation. In opting out, an individual is electing not to be part of a class, not to be bound by rulings that affect the class, and not to be forced to accept any class action settlement. A Bear Stearns employee who decides to opt out generally will hire his or her own lawyer and proceed against Bear Stearns in an individual litigation.

Research shows that opt out plaintiffs pursuing their own cases are generally faring much better than the 2.2 percent average securities class action settlement in 2006. A prominent example is the recent AOL Time Warner Class Action. In April 2007, Oakbridge Insurance Services wrote in its "Insights" report that AOL Time Warner opt-out plaintiffs reported recoveries that were between 6.5 and 50 times higher than what plaintiffs received in the class action settlement (emphasis added). Other sources indicate that the average Time Warner opt-out investor recovered 20 times more than the average class action investor.

It is too early to tell whether the huge advantage for AOL Time Warner opt out plaintiffs will prove to be high or typical. Still, Oakbridge noted that, as a whole, the "the elevated percentage of investment loss recoveries in the opt-out cases" is a concern to class action defendants and to D&O insurers.


The study underlying this release was intended to compare the relative merits of class action litigation versus opt out litigation for Bear Stearns employees. Based on statistical evidence from NERA and the outcomes of prominent securities class action, the only reasonable conclusion is that Bear Stearns employees with substantial losses have a dramatically better chance to recover a higher percentage of losses in individual opt out cases rather than as participants in class actions.


Because the study was statistically based, it does not take into account individual circumstances such as quality of counsel, and facts which may be unique to any individual. This release is information, not legal advice. Bear Stearns employees should consult with an attorney about pursuing claims as part of a class action or through individual litigation.

Brett D. Sherman, Esq.
(201) 723-9470
information @

The Sherman Law Firm has offices
in New York City and Bergen County New Jersey


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