Conrad Hahn is not your typical stockholder in Martha Stewart
Living Omnimedia. While tens of thousands of stockholders in the
company have seen MSO shares drop more than 50 percent since the
beginning of April, Mr. Hahn decided to do something about it - sue.
On Aug. 2, the North Port, Fla., resident, with the help of a
Tampa attorney, filed a class-action suit against chief executive
Martha Stewart, blaming her for the recent drop in the company's
In a 13-page complaint, Hahn alleges that he suffered damages of
at least $75,000 as a result of Ms. Stewart becoming embroiled in an
"It's obvious that those practices which she was involved in with
this insider trading affected her reputation, and consequently the
value of the stock," says Hahn.
Lawyers for Martha Stewart Living Omnimedia called the suit
"totally without merit." But that's not dissuading Hahn's attorney,
Guy Burns, from pressing ahead with his lawsuit. He predicts the
action will eventually have tens of thousands of class members.
Hahn is far from alone in turning to the courts - and
specifically class-action lawsuits - in trying to recover losses
from companies or brokerage firms because of alleged securities
In 2001, according to a Stanford University study, 327 stock-
fraud suits were filed nationwide against corporations ranging from
Cisco Systems to eBay, compared with 204 cases the previous year.
And securities lawyers acknowledge that the suits are getting a lot
more attention since the recent failures of Global Crossing, Enron,
and WorldCom. And that, according to legal analysts, has led to
larger classes filing claims.
"Shareholders who have had losses are much more likely to join a
class action, particularly with the publicity they are getting on
CNBC and CNN," says Lawrence Mitchell, a professor of law at George
Washington University and the author of "Corporate
Irresponsibility." "It's like throwing spaghetti at the wall and
seeing what sticks. Many people feel they have nothing to lose in
trying to cover some of their losses."
The Web is boosting class-action activity, as more individuals
join suits already under way or become aware of suits to which they
are automatically a party.
Investors who feel cheated usually file lawsuits against the
company in which they invested, rather than against a brokerage firm
that helped them invest in the company's stock.
"Don't blame your broker because the company 'cooked the books,'
" says Marvin McIntyre, a prominent stockbroker for Legg Mason, in
Washington. "Your broker, except in extremely rare circumstances,
had nothing to do with the financial irregularities that are now
coming to light. The company defrauded the entire market, including
the very best analysts and the very best brokers."
Except for a few institutional investors that may have losses in
the millions, it is not practical or economically feasible for small
investors to sue a company individually. As a result, many who feel
defrauded join class-action suits.
James Tullman is a securities lawyer with the Manhattan firm of
Weiss & Yourman, which filed a class-action suit July 25 against
Vivendi. The suit alleges that the company issued materially false
and misleading statements that ultimately helped to artificially
inflate Vivendi's stock price. Mr. Tullman says while the standards
for a corporate fraud class-action case are high, a number of
circumstances may raise a red flag. They include:
* A company revising its earnings downward for a previous period.
* Corporate insiders selling their shares when the stock price
* A resignation or change of auditors associated with a big stock-
* Regulatory or criminal actions taken against a company or
Even investors who do nothing can get something if they fall
victim to securities fraud. …