In a short sale, an investor sells a share of stock he does not own and profits when the price of the stock declines. A peculiar feature of short sales is the apparent increase in the number of shares of stock beneficially held by investors over and above the actual number of shares issued by the corporation. It has previously been noted that this may create problems in the execution of proxy votes. In this paper we illustrate a related problem in the prosecution of claims of securites fraud. We examine this problem using the recent case of Computer Learning Centers, Inc., (CLC) in which the number of short sales was extremely large. Plaintiffs in the Computer Learning Centers case proposed a class including all those who purchased CLC common stock from April 30, 1997 to April 6, 1998. Defendants opposed certification of the class, focusing on the large number of short sales and the resulting difficulty in establishing which members of the class actually had standing to sue. The court denied the motion for class certification. Although the court gave plaintiffs leave to amend the class, the case was settled before a new class was identified.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
8618.
Length: Date of creation: Dec 2001 Date of revision: Handle: RePEc:nbr:nberwo:8618
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