What happens to class action awards for a stock in an IRA?

Question

One of the individual stocks I own in an IRA account recently lost a bunch of value, allegedly due to misconduct on its officers' part, and is now the defendant in a bunch of class action lawsuits on behalf of stockholders who lost money.

• If one of these lawsuits results in a settlement or award for the class it represents, will that automatically include me?

• If so, will whoever administers the award automatically know this, or is that something I'd need to pursue?

• Would my share of an award come in the form of a check to me or in the form of a deposit to my IRA?

• What would be the status of the award with respect to income tax?

Main concern:

• Is this an issue I need to follow, or is it something that will take care of itself, such that the first I'd [need to] hear of it would be when a check arrives at my door or a deposit arrives at my IRA?

Answer 1

In most cases, if you are a member of the class the law-firm will contact you via postal mail to notify you of the class action and give you an opportunity to opt-in or opt-out of participating in any settlement that happens.

More often than not, they take the opt-out approach, meaning that if you don't say you want out of the class it is assumed that you agree with the complaints as defined in the class action and would like to receive your portion of the money if there is a settlement.

If you haven't gotten such a letter and you think you should have, it is a good idea to contact the law firm. How do you find the law firm? Usually some Googling on "class action" and the name of the defendant company will get you there. Also, check the legal section of the classifieds of the local newspaper, they sometimes advertise them there.

Typically they aren't hard to find because it is in the law firm's best interest to have everyone sign on to their class action for a number of reasons including: If you have a lot of people who are supposedly aggrieved, it makes the defendant look more likely to be guilty, and more participants can equate to higher settlement amounts (for which the law firm gets a percentage). That is why you see non-stop ads on daytime TV for lawyers marketing class action cases and looking for people who took this drug, or had that hip implant.

Once a settlement occurs and you are a member of that class, there are a number of ways you might get your piece including:
- A credit to your account.
- A check in the mail.
- A coupon or some other consideration for your damages (lame)
- A promise that they will stop doing the bad thing and maybe some changes (in your favor) on the terms of your account.

A final note: Don't get your hopes up. The lawyers are usually the only ones who make any substantial money from these things, not the class members. I've been paid settlements from lots of these things and it is rare for it to be more than $25, but the time the spoils are divided. I've gotten NUMEROUS settlements where my share was less than a dollar.

There are some decent resources on ClassAction.com, but beware that although the site has some good information, it is primarily just an ad for a lawfirm. Also, note that I am not affiliated with that site nor can I vouch for any information contained there. They are not an impartial source, so understand that when reading anything on there.