Private Securities Litigation Reform Act

rdf:langString Private Securities Litigation Reform Act

rdf:langString The Private Securities Litigation Reform Act of 1995, Pub.L. 104–67 (text) (PDF), 109 Stat. 737 (codified as amended in scattered sections of 15 U.S.C.) ("PSLRA") implemented several substantive changes in the United States that have affected certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation, and awards fees and expenses. The PSLRA was designed to limit frivolous securities lawsuits. Prior to the PSLRA, plaintiffs could proceed with minimal evidence of fraud and then use pretrial discovery to seek further proof. That set a very low barrier to initiate litigation, which encouraged the filing of weak or entirely-frivolous suits. Defending against the suits could prove extremely costly, even when the charges were unfounded, and so defendants often found it cheaper to settle than to fight and win. Under the PSLRA, however, plaintiffs must meet a heightened pleading standard before they can initiate a suit. In other words, PSLRA was specifically intended to make it more difficult to initiate securities litigation (frivolous or otherwise) because plaintiffs would supposedly be forced to present evidence of fraud before any pretrial discovery has taken place. Also, PSLRA was enacted to "give teeth to Section 11." In fact, Congress specifically pointed to the reluctance of judges to impose Section 11 sanctions as an additional reason for the passage of the legislation. The PSLRA does impose some new rules on securities class action lawsuits. It allows judges to decide the most adequate plaintiff in class actions by favoring institutional investors with large dollar amounts at stake. It mandates full disclosure to investors of proposed settlements, including the amount of attorneys' fees. It bars bonus payments to favored plaintiffs and permits judges to scrutinize lawyer conflicts of interest.