Academic journal article Vanderbilt Law Review

There Are Plaintiffs and . . . There Are Plaintiffs: An Empirical Analysis of Securities Class Action Settlements

Academic journal article Vanderbilt Law Review

There Are Plaintiffs and . . . There Are Plaintiffs: An Empirical Analysis of Securities Class Action Settlements

Article excerpt

Reform of the securities class action is once again the subject of national debate. The impetus for this debate is the reports of three different groups-the Committee on Capital Market Regulation,1 the Commission on the Regulation of U.S. Capital Markets in the 21st Century,2 and McKinsey & Company.3 Each of the reports focuses on a single theme: how the contemporary regulatory culture places U.S. capital markets at a competitive disadvantage to foreign markets. While the reports target multiple regulatory forces in their calls for reform, each report singles out securities class actions as one of the prime villains that place U.S. capital markets at a competitive disadvantage. The reports' recommendations range from insignificant changes to drastic curtailments of private class actions. Surprisingly, these current-day cries echo calls for reform heeded by Congress in the not-too-distant past.

Major reform of the securities class action occurred with the Private Securities Litigation Reform Act of 1995 ("PSLRA").4 Among the PSLRA's contributions is the introduction of procedures by which the court chooses a lead plaintiff for the class.5 The statute commands that the petitioner with the largest financial loss suffered as a consequence of the defendant's alleged misrepresentation is presumed to be the most adequate plaintiff. Thus, the "lead plaintiff provision supplants the traditional "first to file" rule for selecting the suit's plaintiff with a mechanism that seeks to harness the plaintiffs economic self-interest for the suit's prosecution. Also, by eliminating the race to file first, the lead plaintiff provision seeks to avoid "hair trigger" filings by overly eager plaintiffs' counsel, which Congress believed too frequently gave rise to weak causes of action surviving the defendant's motion to dismiss.6 The PSLRA also introduced for securities class actions a heightened pleading requirement,7 as well as a bar to the plaintiff from obtaining any discovery prior to the district court disposing of the defendants' motions to dismiss.8 By introducing the requirement that allegations involving fraud not only must be pled with particularity, but also that the pled facts must establish a "strong inference" of fraud, the PSLRA cast aside-albeit only for securities actions-the less demanding notice pleading requirement that has been a fixture of U.S. civil procedure for decades.9

The PSLRA also introduced substantive changes to the law. With few exceptions, joint and several liability was replaced with proportionate liability so that a particular defendant's liability is capped by the defendant's relative degree of fault. 10 Similarly, contribution rights among co-violators are also based on the proportionate fault of each defendant.11 Three years after passing the PSLRA, Congress returned to the subject of abusive securities class actions by enacting the securities Litigation Uniform Standards Act ("SLUSA").12 This law was prompted by the aggressive efforts of plaintiffs' lawyers to bypass PSLRA limitations-most notably the bar to discovery and higher pleading requirement-by bringing suit in state court. 13 Post-SLUSA, securities fraud class actions are exclusively the domain of the federal court.

In this Article, we examine the impact of the PSLRA and, more particularly, the impact of the type of lead plaintiff on the size of settlements in securities fraud class actions. We provide insight into whether the type of plaintiff that heads the class action impacts the overall outcome of the case. Furthermore, we explore possible indicia that may explain why some suits settle for sums that are extremely small relative to the "provable losses" suffered by the class, to the asset size of the defendant-company, and to other settlements in our sample. This evidence bears heavily on the debate over "strike suits."

Part I of this Article sets forth the contemporary debate surrounding the need for further reforms of securities class actions. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.