Much ink is spilled (particularly by self-laudatory securities litigators) on the potential upside of the process of opting out of securities class actions and filing individual or group actions over the same alleged misstatements or omissions.

Someone in the plaintiffs bar (perhaps with a PR background) even created a new term to describe these cases - direct actions.

It seems that virtually all of what has been written on the issue has focused on the allegedly larger recoveries that opt-out plaintiffs have received in their own cases as compared to what they would have received if they had remained in the class action and filed a claim for their pro-rata share of the settlement fund.

Well most upsides also have a downside, and a recent state court trial of an opt-out case provides a nice case study for us.

Back in 2004, Aspen Technology, Inc. (OTC: AZPN) and several of Aspen's officers and directors were hit with a securities class action alleging that from October 1999 through October 2004, the defendants had failed to disclose and misrepresented that:

(i) the Company had improperly and prematurely recognized revenue for certain software license and service agreement transactions entered into with certain alliance partners and other customers during fiscal years 2000-2002 and possibly other periods;

(ii) the Company lacked adequate internal controls and was therefore unable to ascertain its true financial condition; and

(iii) as a result, the values of the Company's revenues, earnings, assets and/or liabilities for fiscal years 2000-2002 and possibly other periods were materially overstated and might have to be restated.

During the class period, Aspen had acquired ICARUS Corporation, a company that produced computer software used by the process manufacturing industries to estimate plant capital costs and evaluate project economics, for about $25 million. The payment was a combination of cash, a promissory note, and Aspen stock with a market value of $12.4 million.

In November 2005 the defendants settled the class action litigation for $5.6 million.

Certain class members representing 1.4 million shares of common stock (or less than 1% of the shares purchased during the class period) opted out of the class action settlement.

Three separate actions were filed on behalf of the holders of approximately 1.1 million of the opt-out shares. One of the actions settled, another is still pending, and a third (you guessed it - on behalf of the former owners of ICARUS) went to trial before the Business Litigation Session of the Massachusetts Superior Court for Suffolk County in November 2009.

The ICARUS complaint alleged claims against Aspen and certain former officers alleging securities and common law fraud, breach of contract, statutory treble damages, deceptive practices and/or rescissory damages liability. The damages sought by the plaintiffs (which included trebled claims) were estimated to be $30 million.

Earlier this month, Justice Judith Fabricant ruled that "no fraud occurred...defendants are entitled to judgment on all counts of the complaint." A copy of Justice Fabricant's decision can be found here. According to a blurb on Skadden's website (defense counsel for Aspen) - the news is even worse for the former owners of ICARUS, noting that Justice Fabricant ruled that "the defendants recover of the plaintiffs its costs of action, as provided by law."

Those that stayed in the Aspen class action? The settlement fund was disbursed in March 2008.

As an aside, it is worth noting that the phrase "direct action" has another wider usage:

Politically motivated activity undertaken by individuals, groups, or governments to achieve political goals outside of normal social/political channels. Direct action can include nonviolent and violent activities which target persons, groups, or property deemed offensive to the direct action participant.

So, the next time you see an angry group of shareholders, just remember, they are probably only on their way to the courthouse...