Optimal Lead Plaintiffs

Adequate representation in securities class actions is, at best, an afterthought and, at worst, usurped and subsumed by the Private Securities Litigation Reform Act's lead-plaintiff appointment process. Once appointed, the lead plaintiff bears a crushing burden: Congress expects her to monitor the attorney, thwart strike suits, and deter fraud, while judges expect her appointment as the "most adequate plaintiff" to resolve intraclass conflicts and adequate-representation problems. But even if she could be all things to all people, the lead plaintiff has little authority to do much aside from appointing lead counsel. Plus, class members in securities-fraud cases have diverse preferences-their litigation stakes, risk preferences, relationships with class counsel, financial sophistication, and desired remedies all vary. Yet, the presumption is that because class members are absent, a lead plaintiff with claims and motivations similar to theirs will advance their interests and ensure due process. But a single institution or investor pursuing its or her own interests is hard pressed to represent a diverse class, much less to fulfill Congressional and judicial expectations. In practice if not in print, courts define "interests" in terms of a widely shared desire to recover one's losses. This broad definition allows judges to certify securities class actions and thus promote private enforcement's public function by holding the government and corporations accountable. But it also means that attorneys can pursue an institutional lead plaintiff's interests at the other class members' expense. The "other class members" are principally individual investors, those who need the class-action vehicle the most. The logical solution is to appoint a lead-plaintiff group. But so far, groups have underperformed largely because courts prefer members with preexisting relationships and group cohesion-the same qualities that lead to group polarization and confirmation bias. Consequently, this Article suggests an alternative remedy: appoint a cognitively diverse lead-plaintiff group with individuals and institutions and link diversity to class members' heterogeneous interests. Once a richly representative group exists, it should have more decisionmaking autonomy; lead counsel should consult and defer to the group's decisions on matters that implicate plaintiffs' values and litigation objectives or affect the case's merits just as attorneys do in individual litigation. INTRODUCTION Good lead counsel is hard to find.1 We, Congress, the Securities Exchange Commission ("SEC"), and the public trust that class counsel will be a good and faithful agent so long as a lead plaintiff is there to monitor her every move.2 Problem is, good lead plaintiffs are hard to find, too. In part, we expect too much: the Private Securities Litigation Reform Act ("PSLRA") insists that a lead plaintiff monitor the class attorneys and hopes that she will prevent strike suits and deter fraud;3 Rule 23(a)(4), on the other hand, demands that the lead plaintiff adequately represent class members with diverse risk preferences, sophistication levels, and desired remedies.4 Contrast, for example, this lead-plaintiff heroine in securities-fraud class actions with a run-of-the-mill class representative from a small stakes, negative-value class action who we hope might have read the complaint and whom we openly dub a "figurehead."5 It doesn't help that the lead plaintiffs PSLRA and Rule 23(a) obligations may steer her in opposite directions. She may monitor the class attorney like a hawk and squelch attorney opportunism at every turn, but when her self-interest conflicts with the interests of those she represents, the zealot becomes the oppressor. For example, because institutional lead plaintiffs are more likely to continue to hold stock in a defendant corporation, they may push for corporategovernance reforms, which means that their advocacy will work to the detriment of former shareholders who want to maximize their monetary recovery. …