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News & Events


Report Card: The Private Securities Litigation Reform Act

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Doug Greene authored a January 15 Law360 article titled “Report Card: The Private Securities Litigation Reform Act.” In the article, Greene discussed and graded key provisions of the Private Securities Litigation Reform Act, which turned 20 years old in 2015.

The Reform Act was passed by the Contract-with-America Congress to address its perception that securities class actions were reflexive, lawyer-driven litigation that often asserted weak claims based on little more than a stock drop, and relied on post-litigation discovery, rather than prelitigation investigation, to sort out the validity of the claims. The Reform Act, among other things:

  • Imposed strict pleading standards for showing both falsity and scienter, to curtail frivolous claims by increasing the likelihood that they would be dismissed;

  • Created a safe harbor for forward-looking statements, to encourage companies to make forecasts and other predictions without undue fear of liability;

  • Imposed a stay of discovery until the motion-to-dismiss process is resolved, to prevent discovery fishing expeditions and to eliminate the burden of discovery for claims that do not meet the enhanced pleading standards; and

  • Created procedures for selecting a lead plaintiff with a substantial financial stake in the litigation, to discourage lawyer-driven actions and the “race to the courthouse.”

In concluding the article, Greene states:

 In outlining this article, I originally organized my thoughts around this question: Are companies and their directors and officers really better off than they were 20 years ago? Although it may seem absurd that a defense lawyer could even think about answering that question “no,” it really is a fair question. I could make the case that the Reform Act’s tools have actually hindered the overall effectiveness of securities litigation defense by distracting from its core purpose: to convince a judge or jury that the defendants didn’t say anything false…