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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  1. 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

  2. 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

  3. 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

  4. 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

  5. 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

  6. Securities Lawsuits Filed at a "Torrid Pace" in Year's First Half

    July 09, 2018 | News

    The number of securities lawsuit filings in the first six months of 2018 project a year-end total that would more than double the annual average between 1996 and 2016, according to D&O Diary's Kevin LaCroix.... Read More

  7. In the News Today - July 3, 2018

    July 03, 2018 | News

    Pace of Securities Lawsuits on Track to Match Historic Highs of 2017; Civil Justice Advocate to Investigate "Objector Blackmail" in Chicago Class Action... Read More

  8. Special Master Report on Overbilling Unsealed, Recommends Fines and Repayment

    June 29, 2018 | News

    The special master's report in the $300 billion State Street securities lawsuit has been released, and recommends plaintiffs' attorneys return up to $10.6 million of the $75 million fee award, Law360 reports.... Read More

  9. In the News Today - June 25, 2018

    June 25, 2018 | News

    Major Plaintiffs' Firm Hit With RICO Lawsuit; Plaintiffs' Firm in Center of Overbilling and Public Corruption Controversy Wants to See Judge's Communications... Read More

  10. Judge's Probe into Overbilling May Uncover Broad Corruption Scheme

    June 20, 2018 | News

    A Boston judge's probe into potential overbilling in the $300 million securities lawsuit against State Street Corp. has led to questions about potential public corruption involving plaintiffs' lawyers and an Arkansas pension fund, National Law Journal reports.... Read More