Securities Litigation Reform

Private securities class actions are lawsuits filed on behalf of shareholders against publicly–traded companies that allegedly defrauded their investors. Supporters of these cases claim they are necessary to compensate shareholders and deter wrongdoing by corporations. However, the primary beneficiaries of securities class actions are plaintiffs’ lawyers – not investors. At the same time, these cases threaten the health of the U.S. economy – imposing huge costs on American businesses, investors and employees while hurting the global competiveness of U.S. securities markets. read more...

There is enormous pressure on companies to settle securities class actions because of the burden imposed on management, the cost of going to trial, and the risk of a runaway verdict. This dynamic typically results in major settlements even if the underlying claims have questionable merit. And even if a claim is legitimate, a settlement effectively results in one group of innocent shareholders (those who own shares at the time of the settlement) paying another group of innocent shareholders. The individuals responsible for any wrongdoing rarely make a significant contribution. In addition, recoveries usually amount to just pennies on the dollar of alleged loss, while plaintiffs’ lawyers walk away with major fees. Those whom the securities class action system is supposed to protect – small, individual retail investors – are the ones who, in fact, benefit the least.

The current system is also plagued by abuse. In fact, several leading securities plaintiffs’ lawyers were sent to prison for offering bribes and kickbacks to potential plaintiffs. The integrity of the securities class action system is further undermined by a legal “pay–to–play” culture of corruption in which lawyers make political contributions to the politicians charged with deciding who will represent large public pension funds as lead plaintiffs in these suits–and thus who will collect the largest share of attorneys’ fees from future settlements.

The securities litigation system also hurts the global competitiveness of U.S. securities markets.

Recently, plaintiffs' lawyers have pioneered a new tactic – suing companies involved in a merger or acquisition in state courts. This lucrative form of litigation occurs because the parties to the merger want to close their deal quickly – thus allowing plaintiffs’ lawyers to hold the merger hostage through the use of multiple lawsuits. The vast majority of these suits settle quickly and like other types of securities litigation, typically provide little or no benefit for shareholders. But the settlements do result in large fees to the plaintiffs' lawyers who filed the lawsuits. While the courts, especially those in Delaware, are beginning to look unfavorably on this type of litigation, it is still an open question whether this type of spurious litigation is going to end. 

To curb securities litigation abuses, Congress should consider commonsense reforms like the Securities Litigation Attorney Accountability and Transparency Act (SLAATA). This measure would expose relationships between securities class action attorneys and plaintiffs, target “pay–to–pay” conflicts between plaintiffs’ attorneys and state pension fund officials, and introduce a competitive bidding process for selecting lead plaintiffs’ attorneys in securities class actions. In addition, Congress and state legislatures should consider measures to limit forum shopping and other abuses related to mergers and acquisitions litigation.


The ILR Research Review - Spring 2015

May 18, 2015 | This edition of the ILR Research Review offers valuable insights from the latest of ILR's research on enforcement slush funds, Canadian class actions, emerging litigation trends and theories from the plaintiffs' bar, and recent state tort law rulings.

Lawsuit Ecosystem II: New Trends, Targets and Players

December 04, 2014 | This report, authored by a distinguished group of practitioners, explores the evolving lawsuit "ecosystem." It considers how plaintiffs' lawyers generate litigation and significant developments that will spur more lawsuits or rein in excessive liability.

All Results for Securities Litigation Reform

In the News Today -- July 18, 2016

July 18, 2016 | News and Blog

Citing the "outsized influence of the trial lawyer's agenda in Albany," Adam Morey, government affairs manager for the Lawsuit Reform Alliance of New York, cites the state's 21st ranking in ILR's 2015 Lawsuit Climate Survey study in calling for passage of legal reforms in the state. Read More »

In the News Today - July 14, 2016

July 14, 2016 | News and Blog

Under pressure from groups, including ILR, to reform its in-house administrative proceedings, the U.S. Securities and Exchange Commission approved changes that would give defendants up to ten months to prepare for hearings and depositions in certain matters. Read More »

Securities Class-Action Settlements Surge in 2015

April 04, 2016 | News and Blog

Cornerstone Research issued its latest annual report showing the number and average size of securities class-action settlements increased in 2015 by more than $3 billion as compared to 2014. Read More »

In the News Today - August 17, 2015

August 17, 2015 | News and Blog

In a case that stems from the New York Department of Financial Services' (NYDFS) push to force one of Promontory Financial Group's client banks to waive attorney-client privilege, Promontory is now challenging the NYDFS' move to "block the consulting firm from advising New York-based banks in some cases." (Wall Street Journal) Read More »

Delaware as Nation's Corporation HQ Threatened by New Anti-Fee-Shifting Legislation

June 11, 2015 | News and Blog

Former SEC Commissioner Paul Atkins writes that Delaware risks "eroding its vaunted position" as the "undisputed champion of where companies choose to call home" if its legislature passes a bill preventing corporations from adopting fee-shifting bylaws. Read More »

In The News Today - June 10, 2015

June 10, 2015 | News and Blog

"A federal judge's ruling against the Securities and Exchange Commission for using its own judges in an insider-trading case might be looked at in hindsight as the beginning of the end of an alternative system of justice that took root in the New Deal but has raised serious constitutional questions ever since," writes Daniel Fisher. Read More »

The ILR Research Review - Spring 2015

May 18, 2015 | Research

This edition of the ILR Research Review offers valuable insights from the latest of ILR's research on enforcement slush funds, Canadian class actions, emerging litigation trends and theories from the plaintiffs' bar, and recent state tort law rulings. Read More »

SEC Moving Cases from U.S. District Courts to In-House Courts

May 07, 2015 | News and Blog

Today's Wall Street Journal features a story on the Securities and Exchange Commission (SEC) shifting its enforcement actions from independent U.S. District Courts to internal administrative tribunals. Read More »

In the News Today - April 13, 2015

April 13, 2015 | News and Blog

In an upcoming Columbia Law Review article, two professors show how the current method of awarding fees in securities class actions-which are generally determined based on settlement outcomes and the leanings of certain courts, rather than at the onset of a case-is deeply flawed to the benefit of plaintiffs' lawyers. (Reuters) Read More »

In the News Today - April 7, 2015

April 07, 2015 | News and Blog

Looking to heighten their enforcement profile, federal agencies such as the Securities and Exchange Commission (SEC) and the Federal Energy Regulatory Commission (FERC) are tapping former Justice Department prosecutors to lead their enforcement units, and in the case of FERC, to lead the entire agency. (Wall Street Journal) Read More »

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