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 by imposing huge costs on American businesses, investors, and employees, while hurting the global competiveness of U.S. securities markets and serve as a barrier to private companies considering whether to become public. Read More...

There is enormous pressure on companies to settle securities class actions because of the burden they impose on management, the cost of going to trial, and the risk of a runaway verdict. This dynamic typically results in major settlements even when the underlying claims are of questionable merit. 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 wrongdoing rarely make a significant contribution. In addition, recoveries usually amount to just pennies on the dollar of alleged losses, while plaintiffs’ lawyers walk away with marge contingency 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. Companies actively question whether they want to access the U.S. securities markets and expose themselves to the exceptional liability our system imposes. Furthermore, the risk of liability is something too great for companies to move from being privately held to public.  

Plaintiffs' lawyers also sue 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 clear majority of these suits settle quickly and, like other types of securities litigation, typically provide little or no benefit to shareholders. But the settlements do result in large fees to the plaintiffs' lawyers who filed the lawsuits. While the courts, including those in Delaware (where many publicaly traded companies are incorporated), 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 be put to a stop. 

To curb securities litigation abuses, Congress should consider commonsense reforms that would expose relationships between securities class action attorneys and plaintiffs, target “pay–to–play” 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.

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All Results for Securities Litigation Reform

  1. In the News Today - August 14, 2018

    August 14, 2018 | News

    RICO Suit Accuses California Firm of Bribing Plaintiffs; Ontario Rejects "Jurisdictional Overreach" for Securities Lawsuits... Read More

  2. It's Getting Harder to File "Meritless" Merger Lawsuits, Advisor Says

    August 10, 2018 | News

    A communications advisor with an investor relations firm said in D&O Diary that it may be "getting more difficult" for plaintiffs' lawyers to file "questionable" merger lawsuits now that the effects of the Delaware Court of Chancery's Trulia decision are taking hold.... Read More

  3. Why is a Securities Class Action Lawsuit In Massachusetts Causing a Stir in the Arkansas Legislature?

    August 06, 2018 | Blogs

    Boston and Little Rock are more than 1,200 miles apart, but a $300 million settlement in a securities class action lawsuit has developments in the former causing concerns in the latter. ... Read More

  4. In the News Today - July 26, 2018

    July 26, 2018 | News

    California Court Rejects Doctor's Attempt to Force Warning Labels on Cereal; 1st Circuit Denies Labaton Effort to Dismiss Judge... Read More

  5. Report: Securities Lawsuit Filings at "Near Record Levels"

    July 26, 2018 | News

    A new report from Cornerstone Research found that securities class action lawsuits were filed at "near record levels" in the first six months of 2018, D&O Diary reports.... Read More

  6. Arkansas Legislators Grill Teachers' Pension Leader Over Securities Lawsuit

    July 18, 2018 | News

    Lawmakers in Arkansas questioned the executive director of the Arkansas Teacher Retirement System (ATRS) during a hearing yesterday over the fund's involvement in the controversial $300 million State Street Corp. securities lawsuit in Massachusetts, Legal Newsline reports.... Read More

  7. No Good Deal Goes Un-litigated

    July 18, 2018 | Blogs

    Want to sign a merger deal? You'll probably need to fight a lawsuit before the ink is dry, and it won't be cheap.... Read More

  8. Arkansas Lawmakers To Probe Pension Fund's Role in Securities Class Action

    July 16, 2018 | News

    Arkansas lawmakers will hold a hearing to discuss the Arkansas Teacher Retirement System's (ATRS) involvement in securities class action lawsuits after a federal judge in Massachusetts raised questions about the system's relationships with lawyers, the Arkansas Democrat-Gazette reports.... Read More

  9. Securities Class Action Lawsuits Remain Near 2017 Record High

    July 12, 2018 | Blogs

    The chances of a company being sued in a securities class action lawsuit are higher now than at any time in the 20 years since Congress passed the Private Securities Litigation Reform Act (PSLRA), which rewrote the rules for modern securities fraud litigation in 1995. ... Read More

  10. In the News Today - July 11, 2018

    July 11, 2018 | News

    Bestwall Lawyers Push Back on Asbestos Plaintiffs' Lawyers Attempt to Hire Four New Firms; New Report Finds Cost of Securities Litigation Has Skyrocketed in Recent Years... Read More