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. Special Master, Labaton Reach Tentative Settlement in Controversial Securities Lawsuit

    September 20, 2018 | News

    The special master appointed to investigate claims of double billing by Labaton Sucharow in the scandal-plagued $300 million State Street Corporation securities lawsuit has reached a tentative settlement with the firm, Law360 reports.... Read More

  2. "Has the Song Remained the Same" On Securities Litigation?

    September 19, 2018 | News

    In an "Insight Alert," attorneys from King & Spalding look into recent developments in securities litigation defense and suggest a new strategy may be emerging.... Read More

  3. In the News Today - September 5, 2018

    September 05, 2018 | News

    Florida Insurance Officer Warns of Assignment of Benefits Scams; Is Data Privacy the "Next Australian Securities Litigation Frontier?"... Read More

  4. In the News Today - August 23, 2018

    August 23, 2018 | News

    Kokesh Doesn't Stop SEC From Collecting Disgorgements, Federal Judge Says... Read More

  5. In the News Today - August 22, 2018

    August 22, 2018 | News

    Ninth Circuit Decision May Lead to More Securities Settlements; "20 Years of Tech: How ILR Has Led the Legal Conversation on Emerging Technologies" ... Read More

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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