A lead plaintiff is the investor or group of investors a federal court appoints to direct a securities class action on behalf of every class member, under the Private Securities Litigation Reform Act of 1995 (PSLRA). Investors who are not chosen as lead plaintiff remain class members and share in any settlement through the claims process.
Quick Answer
In a federal securities class action, the Private Securities Litigation Reform Act of 1995 requires the court to appoint a lead plaintiff, the class member it finds most capable of representing everyone else. Notice of the case must be published within 20 days after the complaint is filed, investors have 60 days after that notice to ask for the role, and the court decides within 90 days of the notice. The law presumes the most adequate plaintiff is the movant with the largest financial interest in the relief sought who also meets the class action requirements of Rule 23. The lead plaintiff selects class counsel, subject to court approval, and receives the same per-share recovery as other class members, plus any reasonable costs the court approves.
On this page
What a Lead Plaintiff Is
A lead plaintiff is the class member who directs a securities class action on behalf of everyone in the class. The role comes from the Private Securities Litigation Reform Act of 1995, which added a court-supervised selection process to private class actions brought under the federal securities laws. The lead plaintiff provisions appear at 15 U.S.C. § 78u-4(a).Under the statute, the court appoints the “most adequate plaintiff,” the member or members of the class it determines to be most capable of adequately representing the class. Once appointed, the lead plaintiff selects and retains class counsel, subject to the court’s approval, and oversees the case, including decisions about whether to settle.
In other class actions, the people who represent the class are usually called class representatives or named plaintiffs. In securities cases, the lead plaintiff is often an institutional investor, such as a pension fund, because institutions tend to hold large positions. Individual investors and groups of investors are also appointed.
The PSLRA Lead Plaintiff Timeline
The PSLRA sets out a fixed sequence for every private securities class action:- Certification with the complaint. Each plaintiff seeking to serve as a class representative files a sworn certification with the complaint. It states that the plaintiff reviewed and authorized the complaint, did not buy the security at a lawyer’s direction, is willing to testify, lists the plaintiff’s transactions in the security during the class period, identifies any other securities class actions the plaintiff sought to lead in the past three years, and confirms the plaintiff will not accept payment beyond a pro rata share without court approval.
- Notice within 20 days. No later than 20 days after the complaint is filed, the plaintiff must publish notice in a widely circulated national business-oriented publication or wire service. The notice describes the claims and the class period and tells class members they may move to serve as lead plaintiff.
- Motions within 60 days. Any class member may move for appointment as lead plaintiff no later than 60 days after the notice is published.
- Decision within 90 days. The court rules on the motions within 90 days after the notice is published. When several related cases have been filed, the court generally decides whether to consolidate them before appointing a lead plaintiff.
How the Court Chooses: The Largest Financial Interest
The statute creates a rebuttable presumption that the most adequate plaintiff is the person or group of persons that:- filed the complaint or made a timely motion in response to the notice,
- has the largest financial interest in the relief sought by the class, and
- otherwise satisfies the requirements of Federal Rule of Civil Procedure 23, such as typicality and adequacy.
Another class member can rebut the presumption only with proof that the presumptive lead plaintiff will not fairly and adequately protect the interests of the class, or is subject to unique defenses that make it incapable of adequately representing the class. The statute does not define “largest financial interest,” and courts commonly look at measures such as the number of shares bought during the class period, the net shares and net funds spent, and the approximate loss suffered.
Free settlement alerts
Get notified when new class actions open to claims
Join thousands of readers who get the latest class action settlements you may qualify for — delivered straight to your inbox.
Limits on Lead Plaintiffs
The PSLRA includes several provisions aimed at the lead plaintiff’s role and pay:- Professional plaintiff limit. Unless the court permits otherwise, a person may serve as lead plaintiff in no more than five securities class actions during any three-year period.
- Equal recovery. The lead plaintiff’s share of a judgment or settlement is equal, on a per-share basis, to the share awarded to all other class members. The court may separately award reasonable costs and expenses, including lost wages, directly related to representing the class.
- Attorney fees. Total fees and expenses awarded to class counsel may not exceed a reasonable percentage of the damages and prejudgment interest actually paid to the class.
- Settlement disclosures. A settlement notice sent to the class must state the average recovery per share, the parties’ positions on potential damages, the attorney fees and costs requested, contact information for class counsel and the reasons for the settlement.
Lead Plaintiff Deadline Notices
Because the PSLRA requires notice of every new securities class action, filing a case triggers a wave of press releases from plaintiffs’ law firms announcing the company, the class period and the “lead plaintiff deadline,” the end of the 60-day window for lead plaintiff motions. These releases are advertising for the firms. They are also one of the fastest public signals that a securities class action has been filed against a particular company.The lead plaintiff deadline is not a deadline to join the class or to recover money. Investors who bought or sold during the class period are class members whether or not they ask to lead the case. If the case later settles, the settlement notice sets a separate deadline to submit a claim, and a class member’s recovery is generally calculated under the settlement’s plan of allocation from the brokerage records submitted with the claim. Open securities settlements are collected on OpenClassActions.com’s securities class actions page.
Frequently Asked Questions
Does an investor have to be the lead plaintiff to recover money in a securities class action?
Under the PSLRA, the lead plaintiff directs the case for the whole class, and other class members share in any recovery without seeking the role. When a securities class action settles, class members generally recover by submitting a claim form to the settlement administrator, and the lead plaintiff’s share is calculated on the same per-share basis as everyone else’s.
What is a lead plaintiff deadline?
A lead plaintiff deadline is the last day to ask the court to be appointed lead plaintiff. The PSLRA requires notice of a new securities class action to be published within 20 days after the complaint is filed, and investors have 60 days after that notice to file a motion. Law firm press releases announcing these deadlines are a common sign that a securities class action has been filed.
How does a court choose the lead plaintiff?
The court appoints the most adequate plaintiff. The PSLRA creates a rebuttable presumption in favor of the person or group that filed the complaint or a timely motion, has the largest financial interest in the relief sought by the class, and otherwise meets the requirements of Federal Rule of Civil Procedure 23. Another class member can rebut the presumption only with proof that the presumptive lead plaintiff will not fairly and adequately protect the class or is subject to unique defenses.
Can a group of investors serve as lead plaintiff?
The PSLRA refers to a person or group of persons, so courts can appoint a group. Courts differ on how they evaluate groups, and many look at whether the members can work together and oversee counsel effectively rather than simply adding up unrelated investors’ losses.
Is the lead plaintiff paid extra?
The PSLRA provides that the lead plaintiff’s share of a judgment or settlement is equal, on a per-share basis, to that of other class members. The court may separately award reasonable costs and expenses, including lost wages, directly related to representing the class.
Sources
- 15 U.S.C. § 78u-4 — Private securities litigation, including the lead plaintiff provisions (Cornell Legal Information Institute)
- H.R. 1058, Private Securities Litigation Reform Act of 1995 — Congress.gov
- Class Action Lawsuits — Investor.gov, U.S. Securities and Exchange Commission
