On 12 October 2016, Maurice Blackburn filed a class action against Slater & Gordon Limited (ASX: SGH) when the Slater and Gordon share price was at $0.38.
By the time Maurice Blackburn Lawyers confirmed on 11 July 2017 that a proposed settlement of $36.5 million had been reached, the Slater and Gordon share price had shed $0.30c and was trading at $0.08c.
The class action, launched by shareholders who accused the company of misleading them, was just one of many issues that Slater and Gordon was battling through. But it certainly didn't help the share price.
Maurice Blackburn National head of Class Actions, Andrew Watson, said the settlement was "the best outcome from a terrible situation for shareholders, given the diabolical alternative which meant likely insolvency for Slater and Gordon".
As such, it appears the shareholders almost wiped out the company they invested in themselves.
Once the proposed settlement was announced on July 11 the Slater and Gordon share price started to climb by more than 20% from $0.08 to close on July 12 at $0.10.
At the end of it all, it seems the only winners were the lawyers and those funding the class action.
The point is illustrated again by another example provided by the Bank of America and its shareholders.
The housing market meltdown saw the Bank of America share price drop from close to US$13 to just above US$5 and $50 billion in market capitalisation losses, prompting shareholders to sue for compensation.
But it seems the shareholders were only hurting themselves.
The US Chamber of Commerce's Institute for Legal Reform stated securities class actions cost investors about US$40 billion per year, with a return for suing their companies sitting at about US$4 billion.
This will not come as good news to Commonwealth Bank of Australia (ASX: CBA) shareholders.
But for IMF Bentham Limited (ASX: IMF), Australia's largest litigation funder and the firm funding the CBA shareholders' class action, it's a different story.
While CBA shares have been sliding since news of its money laundering scandal broke, IMF Bentham shares have been on the rise.
IMF Bentham shares have gone from around $1.90 in early August to close on Monday at $2.11.
With IMF Bentham preparing shareholder class actions against Sirtex Medical Limited (ASX: SRX), Woolworths Limited (ASX: WOW) and UGL Limited (ASX: UGL), to list a few, its future looks a lot brighter than some of those it's betting against.
