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. In a 2007 survey comparing New York and London as global financial centers, corporate executives rated quality of legal system as one of the top two factors in determining a country’s economic competitiveness. And when asked to compare the U.K. and U.S. legal systems, 85 percent of the executives surveyed preferred the U.K. They specifically cited the U.S. system’s high costs and perceived lack of predictability and fairness as problems

Recently, plaintiffs’ lawyers have pioneered a new tactic – suing companies involved in a merger or acquisition in state courts. Nearly every merger or acquisition that involves a public company and is valued over $100 million – 93% of all such transactions in 2012 – becomes the subject of litigation within weeks of its announcement. Furthermore, each merger typically faces multiple lawsuits. 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.

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.

 

 

Research

The ILR Research Review

July 08, 2014 | ILR is pleased to announce the release of the inaugural issue of the ILR Research Review, which offers valuable insights from our preeminent experts and specialists on key topics addressed in the latest of our innovative advocacy and economic papers.

Economic Consequences: The Real Costs of U.S. Securities Class Action Litigation

February 28, 2014 | The recent decision of the U.S. Supreme Court to hear an appeal in Halliburton v. Erica P. John Fund has revived the questions about the societal utility of securities fraud class action lawsuits. Since the passage of the Private Securities Litigation Reform Act (PSLRA) in 1995, thousands of such class action lawsuits have been filed alleging trillions in shareholder damages.

All Results for Securities Litigation Reform

SCOTUS Docket Includes Two Cases In Which U.S. Chamber Filed Briefs

October 06, 2014 | Insights

As the U.S. Supreme Court returns to the bench this week, BusinessWeek's Paul Barrett highlights important business cases before the Court, including two in which the U.S. Chamber Litigation Center has filed amicus briefs. Read More »

Tags: Legal Ethics, Securities Litigation Reform

The ILR Research Review

Author: Institute for Legal Reform | July 08, 2014 | Research

ILR is pleased to announce the release of the inaugural issue of the ILR Research Review, which offers valuable insights from our preeminent experts and specialists on key topics addressed in the latest of our innovative advocacy and economic papers. Read More »

Tags: Securities Litigation Reform, Class Actions Around the Globe, Class Actions

In the News Today - April 4, 2014

April 04, 2014 | Insights

Courts are taking a closer look at attorney fees in merger and acquisition lawsuits that often result in disclosure-only settlements. Read More »

Tags: Asbestos, Lawsuit Lending, Securities Litigation Reform, Illinois, Tennessee

In the News Today - March 27, 2014

March 27, 2014 | Insights

A judge is scheduled to hear arguments from a number of companies - including Ford and Aetna - to unseal evidence in a case that found lawyers were withholding and manipulating evidence in order to boost asbestos payouts. Read More »

Tags: Asbestos, Medical Liability, Securities Litigation Reform, California

In the News Today - March 25, 2014

March 25, 2014 | Insights

Families in Florida are spending more on goods and services due to the costs of litigation. Read More »

Tags: Arbitration, Lawsuit Abuse Impact, Securities Litigation Reform, Delaware, Florida

In the News Today - March 14, 2014

March 14, 2014 | Insights

On Thursday, the Florida Supreme Court struck down the state's $1 million cap on medical malpractice awards, ruling it violated Florida's equal protection law. Read More »

Tags: Medical Liability, Securities Litigation Reform, Florida

The Problem with Frequent Filers

March 12, 2014 | Insights

It's time to put some limits on class-action frequent filers says a Washington Examiner editorial. Read More »

Tags: State Attorneys General, Securities Litigation Reform

The Securities Class Action Lords

March 10, 2014 | Insights

Lost in last week's flurry of activity surrounding the Halliburton argument before the Supreme Court was a key question: who is bringing these suits and why? Read More »

Tags: State Attorneys General, Securities Litigation Reform, Legal Ethics, Class Actions

In the News Today - March 6, 2014

March 06, 2014 | Insights

Yesterday, the Supreme Court heard arguments in Halliburton v. Erica P. John Fund, which could decide the future of the fraud on the market theory in securities class actions. Read More »

Tags: Foreign Corrupt Practices Act, Securities Litigation Reform

Do Securities Class Actions Actually Help Investors?

March 05, 2014 | Insights

Perhaps no business case before the Supreme Court this term has generated more predictions of seismic significance than the Halliburton v. Erica P. John Fund case before the court this week. Read More »

Tags: Securities Litigation Reform

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