How Financial Investors Can Access Better Transparency In Their Due Diligence

By Kaylee Zhu

Getting sued is a financial company’s worst nightmare. Litigation isn’t just a problem because it consumes a lot of time and adds to executive stress levels, it can also be extremely expensive, too. Billable hours for top litigants can exceed $500 per hour, and each lawsuit can cost hundreds of thousands of dollars, too. 

But lawsuits happen, good or bad. And it’s important that shareholders, investment firms and those individuals investing in financial brands have proper visibility into each case so they can make wise decisions for their portfolios.  

Financial litigation is common today 

There are a handful of common reasons why financial companies find themselves in litigation.  

For example, employee discrimination lawsuits are common in the financial industry. In 2018, Edward Jones Investments was faced with a racial discrimination lawsuit against the company’s Black financial advisors (FAs), as one of the plaintiffs explained that only 6 percent of FAs employed by Edward Jones were non-white, lagging well behind the national average of 21 percent1 

More recently in 2020, M&T Bank faced a disability discrimination lawsuit after a M&T branch manager needed to take time off for surgery on a pregnancy-related disability, but the branch manager was discharged because of her disability and record of disability. M&T Bank was ordered to pay $100,000 in lost wages and compensatory damages to the manager as a result.  

Discrimination can also take place with customers as opposed to employees. This past April, Wells Fargo Bank found itself in a lawsuit for discriminatory residential mortgage policies and lending practices against its Black customers3. The plaintiffs were seeking $5 million in damages, according to the lawsuit. 

Labor laws are another common reason for financial litigation. Bank of New York Mellon Corp. found itself in compensation discrimination allegations when it was found that the company paid female employees less than their male counterparts and paid the Black and Hispanic workers less than their Asian counterparts. Bank of New York Mellon Corp was ordered this past November to pay $1.9 million back in wages and interest to resolve the matter4.   

Lastly, keeping employees and customers safe on premise can also lead to major injury lawsuits. Royal Bank of Canada (RBC) found itself in litigation in 2017 with a former employee after the employee was seriously injured from slipping and falling at the bank’s Independence Square branch. RBC was ordered to pay almost $300,000 in compensation in July 20225. 

Financial litigation significantly impacts investors 

Each of these cases stem from litigation that carries the potential to impact shareholders and investors who have a vested interest in firmly understanding a financial company’s financial bottom line and any litigation that may affect a company’s profit standing – not to mention public reputation, which also impacts the bottom line over time. 

These shareholders and future investors today are taking the power of transparency into their own hands, leveraging the Internet to avail themselves to the ability to research court case filings on every company. 

Better transparent access to lawsuits for transparency 

Known as a lawsuit search engine, these resources are specifically designed to search words and/or phrases and find results based on a crowdsourced search algorithm. These platforms serve as a news source for journalists and a resource for stock investors, researchers, employees, and anyone else seeking an unaltered source of information without commentary or opinion, based on facts only. These platforms differ from standard search engines because they do not include outside commentary pieces which tend to opine on subjects from analysts, bloggers and other parties that may have a particular interest or point of view which may or may not serve harmful to the financial company. 

This type of information-based platform is also proving beneficial for class action markets and group proceedings. 

Class action asset recovery holds significant financial potential for investors. Advisers are often inquired about providing a solution to recoup fiscal losses associated with class action settlements. And, given today’s penchant for environmental, social and governance (ESG) issues more commonly litigated through the securities class action format, a bevy of today’s investors view participation in settlement opportunities as a means to execute on their ESG missions, in addition to recovery of significant monetary opportunities. 

In addition to ESG and financial gains, investment advisers realize that the recovery of investment assets through the securities class action settlement process is necessary to any obligation for customer funds. 

Furthermore, investors and interested parties who follow the financial sector, such as media and analysts, understand the need to have access to better transparency and raw files of information in any part of their due diligence matters, whether it be for investment purposes, news stories or analyst reports.