Journal of International Business and Law


Joon Buhm Lee


Investor plaintiffs, or the attorneys who represented such plaintiffs, could pursue securities fraud claims as a joinder or class action after Korea enacted the Securities-related Class Action Act of 2005 (“SCAA”). Nevertheless, as time revealed, not many class action cases were filed. Research shows that investors are filing securities fraud actions as joinder actions. Not only are the investor plaintiffs filing, but many of them are winning. This article argues that such filings are rational choices made by risk-neutral plaintiffs and plaintiffs’ attorneys. Because the rules for filing a joinder action and a class action differ in various aspects, the plaintiffs and the plaintiffs’ attorneys will find that, in many instances, filing a joinder action maximizes their expected value. This article then analyzes various rule reforms that affect the incentives of plaintiffs and their attorneys. Some of these rules, such as the filing fee and the fee-shifting rules, can incentivize the plaintiff and the plaintiffs’ attorney to file a class action over a joinder action. Some rules, such as the opt-out rule, are difficult to change, although they may also affect the expected value of filing a class action. Next, this article argues for SCAA reform to compensate a broader group of plaintiffs and deter a special kind of defendant, the Korean chaebol family. The Korean Parliament, when importing a procedural rule from another jurisdiction, must consider other relevant procedural rules and market practices that may affect the incentives and behaviors of the potential lead plaintiff and her attorney.

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