Optimal Lead Plaintiffs
Adequate representation in securities class actions is, at best, an afterthought and, at worst, usurped and subsumed by the Private Securities Litigation Reform Act’s lead-plaintiff appointment process. Once appointed, the lead plaintiff bears a crushing burden: Congress expects her to monitor the attorney, thwart strike suits, and deter fraud, while judges expect her appointment as the “most adequate plaintiff” to resolve intraclass conflicts and adequate-representation problems. But even if she could be all things to all people, the lead plaintiff has little authority to do much aside from appointing lead counsel. Plus, class members in securities-fraud cases have diverse preferences—their litigation stakes, risk preferences, relationships with class counsel, financial sophistication, and desired remedies all vary. Yet, the presumption is that because class members are absent, a lead plaintiff with claims and motivations similar to theirs will advance their interests and ensure due process. But a single institution or investor pursuing its or her own interests is hard pressed to represent a diverse class, much less to fulfill Congressional and judicial expectations.
In practice if not in print, courts define “interests” in terms of a widely shared desire to recover one’s losses. This broad definition allows judges to certify securities class actions and thus promote private enforcement’s public function by holding the government and corporations accountable. But it also means that attorneys can pursue an institutional lead plaintiff’s interests at the other class members’ expense. The “other class members” are principally individual investors, those who need the class-action vehicle the most. The logical solution is to appoint a lead-plaintiff group. But so far, groups have underperformed largely because courts prefer members with preexisting relationships and group cohesion—the same qualities that lead to group polarization and confirmation bias. Consequently, this Article suggests an alternative remedy: appoint a cognitively diverse lead-plaintiff group with individuals and institutions and link diversity to class members’ heterogeneous interests. Once a richly representative group exists, it should have more decisionmaking autonomy; lead counsel should consult and defer to the group’s decisions on matters that implicate plaintiffs’ values and litigation objectives or affect the case’s merits just as attorneys do in individual litigation.