Sometimes, when a public company allegedly does something wrong/illegal/etc, the investors of the company organise a class action suit against the company, such as the Commonwealth Bank of Australia (CBA) currently.

The Commonwealth Bank faces a potential investor class action over its disclosure of more than 53,000 alleged breaches of anti-money laundering laws, following a sharp fall in its share price when the scandal emerged earlier this month.

This confuses me, as (to my understanding). The people who own the CBA are suing the CBA.

If they win the case, money gets given from the CBA to the owners of the CBA, presumably in proportion to how much stock they own. This appears to be identical to a dividend, except of course for who decides how much should be distributed. A class action also transfers some of that money to lawyers and courts.

So, I would appreciate if someone can either answer the below questions, or point out some flaw in my assumptions/understanding that makes all of the questions irrelevant.

1) Does the money in a successful class action indeed go from the company, to the people who own the company, in proportion to their share in the company?

2) In the long term, is someone who takes part in and wins a class action suit any richer than if the class action doesn't go ahead?

3) If 2) is yes, is there some other entity that is poorer?

4) If 3) is yes, who?

5) Does a company's stock usually drop when a class action is announced, because the company will have a new expense? Does it usually rise, because investors want to receive the class action payout? Or does it do neither, because these two effects cancel?

6) Is there anything to stop the company simply recouping the class action payout by dropping their dividend?

7) If 6 is yes, does this happen commonly?

8) Depending on the answer to all of the above, why would people organise a class action suit? As opposed to taking some action against those that they perceive to be at fault (calling for the resignation/reduced salary for the executives considered responsible)


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