Shareholder fortunes can rise, and fall, based on their holdings in a corporation. As the corporation profits, they profit. When the corporation suffers a big loss — so do the shareholders.
Except, these days, shareholders may decide to sue in order to recoup those losses. Experts say that more investors are responding to severe drops in a company’s stocks by claiming that they should have been given more information in order to competently make decisions to sell their shares before a problem erupted.
For example, you only have to look at companies like Depomed Inc. Federal and state authorities started looking into its marketing role in the national opioid crisis. When the news broke, the company’s stocks tumbled. Investors sued. They claimed Depomed executive misled them over a two-year period and committed securities violations. It’s hardly a unique case, these days.
When, exactly, can shareholders sue the company?
Basically, shareholders own the company, so they have a right to look out for the company’s interests. If shareholders believe that the company’s executives or board of directors are acting foolishly or recklessly — in a way that will damage the company’s value — they can allege that the officers or directors breached their fiduciary duties. This is called a derivative suit.
If the shareholders believe that a director or officer damaged the shareholders directly, they can sue the corporation — or the officers and directors themselves — for the harm. This is the type of direct action suit many shareholders are filing when they claim they were misled or denied information they were due in order to keep them from selling off their stocks.
Every corporation — regardless of size — should have a plan in place to deal with fraud accusations when investors take a loss. If you’re already in a dispute with your shareholders, it’s time to take action to protect your interests.