Settlements in Securities Fraud Class Actions: Improving Investor Protection

In 1941, Harry Kalven, Jr. and Maurice Rosenfield suggested a new use for class action lawsuits based on the emerging marketplace for publicly traded securities. 1 Kalven and Rosenfield argued that the securities markets had become so complex that investors had little incentive to seek remedies under the Securities Act because the cost of prosecuting a claim far surpassed the expected recovery. 2 To remedy this problem, the authors proposed using civil class actions to police abuses in the securities markets a theory that would later be dubbed the “private attorney general.” 3 The current class action provision codified in Federal Rule of Civil Procedure 23 embodies Kalven’s and Rosenfield’s idea that civil class action suits could empower individual consumer redress while simultaneously ensuring enforcement of the federal securities laws. 4