Lead Plaintiff Incentives in Aggregate Litigation

Abstract

The lead plaintiff role holds out considerable promise in promoting the deterrence and compensation goals of aggregate litigation. The prevailing approach to compensating lead plaintiffs, however, provides no real incentive for a lead plaintiff to bring claims on behalf of a broader group. The policy challenge is to induce sophisticated parties to press claims not in their individual capacity but instead in a representative capacity, conferring a positive externality on all class members by identifying attractive claims, financing ongoing litigation, and managing the work of attorneys. We outline what an active and engaged lead plaintiff could add to the civil enforcement regime and propose a set of reforms designed induce that engagement. In particular, we argue that courts should be open to awarding lead plaintiffs amounts that are roughly equal in magnitude to those awarded to lead counsel.

Keywords: Class Actions, Aggregate Litigation, Law & Economics, Corporate Law, Corporate Governance, Plaintiff Awards, Attorney Fees

JEL Classification: K22