Securities Law Commons^™

The Business Of Securities Class Action Lawyering, Stephen Choi, Jessica M. Erickson, Adam C. Pritchard

Indiana Law Journal

Plaintiffs’ lawyers in the United States play a key role in combating corporate fraud. Shareholders who lose money as a result of fraud can file securities class actions to recover their losses, but most shareholders do not have enough money at stake to justify overseeing the cases filed on their behalf. As a result, plaintiffs’ lawyers control these cases, deciding which cases to file and how to litigate them. Recognizing the agency costs inherent in this model, the legal system relies on lead plaintiffs and judges to monitor these lawyers and protect the best interests of absent class members. Yet …

Working Hard Or Making Work? Plaintiffs' Attorneys Fees In Securities Fraud Class Actions, Stephen J. Choi, Jessica Erickson, A. C. Pritchard

Articles

In this article, we study attorney fees awarded in the largest securities class actions: “mega- settlements.” Consistent with prior work, we find larger fee awards but lower percentages in these cases. We also find that courts are more likely to reject or modify fee requests made in connection with the largest settlements. We conjecture that this scrutiny provides an incentive for law firms to bill more hours, not to advance the case, but to help justify large fee awards—“make work.” The results of our empirical tests are consistent with plaintiffs’ attorneys investing more time in litigation against larger companies, with …

From Trulia To Akorn: A Ride On The Roller Coaster Of M&A Litigation, Pierluigi Matera, Ferruccio M. Sbarbaro

Faculty Scholarship

In recent years, M&A litigation has experienced a dramatic increase, culminating with a peak in 2015, when over 96. of publicly announced mergers were challenged in a shareholder lawsuit. A large number of these lawsuits were frivolous and vexatious, since most claims were filed by plaintiffs' attorneys just to extract some fees with little effort. Some abusive practices emerged, signalling an alarming exploitation of the system. One scheme that plaintiffs' attorneys put in place was the disclosure-only settlement. There, the stockholders obtained some modest supplemental disclosures, the plaintiff's attorneys got significant fee awards from the defendant directors and the defendant …

Securities Law In The Sixties: The Supreme Court, The Second Circuit, And The Triumph Of Purpose Over Text, Adam C. Pritchard, Robert B. Thompson

Articles

This Article analyzes the Supreme Court’s leading securities cases from 1962 to 1972—SEC v. Capital Gains Research Bureau, Inc.; J.I. Case Co. v. Borak; Mills v. Electric Auto-Lite Co.; Superintendent of Insurance v. Bankers Life & Casualty Co.; and Affiliated Ute of Utah v. United States—relying not just on the published opinions, but also the Justices’ internal letters, memos, and conference notes. The Sixties Court did not simply apply the text as enacted by Congress, but instead invoked the securities laws’ purposes as a guide to interpretation. The Court became a partner of Congress in shaping the securities laws, rather …

Enforcing The Bargain V. Materiality Requirement: The Future Of Disclosure-Only Settlements Post-Trulia, Hao Jiang

Pace Law Review

In In re Trulia, Inc. Stockholder Litigation, the Delaware Court of Chancery broke away from its tradition of routinely approving disclosure-only settlements and required disclosures to be material in order to cure the conflict of interest between plaintiff’s counsel and the plaintiff class. I argue that fairness of settlement is the only standard in approving class action settlements and fairness will not be achieved by requiring materiality. Shareholders are legally entitled to all material information, as the board’s fiduciary duty dictates. Thus, material disclosures are enforcement of a legal duty that is no consideration for the release of shareholder claims. …

Arbitration Law Update: 2017-2018, Teresa J. Verges, Elissa Germaine

Faculty Publications

(Excerpt)

This article summarizes the leading federal and state arbitration cases during the last year that are of particular relevance to the securities arbitration practitioner. In its sole arbitration decision during the 2017-18 term, the U.S. Supreme Court held in Epic Systems Corp. v. Lewis that employers could require their employees to waive their right to class actions and collective arbitration. Courts also addressed a host of novel issues, including whether investors can force a non-FINRA member and municipal bond indentured trustee to arbitrate before FINRA, the arbitrability of claims against a cryptocurrency exchange, and the applicability of a state's …

Piling On? An Empirical Study Of Parallel Derivative Suits, Stephen J. Choi, Jessica Erickson, Adam C. Pritchard

Articles

Using a sample of all companies named as defendants in securities class actions between July 1, 2005 and December 31, 2008, we study parallel suits relying on state corporate law arising out of the same allegations as the securities class actions. We test several ways that parallel suits may add value to a securities class action. Most parallel suits target cases involving obvious indicia of wrongdoing. Moreover, we find that although a modest percentage of parallel suits are filed first, over 80 percent are filed after a securities class action (termed “follow-on” parallel suits). We find that parallel suits and, …

The Reasonable Investor Of Federal Securities Law, Amanda Rose

Vanderbilt Law School Faculty Publications

Federal securities law defines the materiality of corporate disclosures by reference to the views of a hypothetical reasonable investor. For decades the reasonable investor standard has been a flashpoint for debate with critics complaining of the uncertainty it generates and defenders warning of the under-inclusiveness of bright-line alternatives. This Article attempts to shed fresh light on the issue by considering how the reasonable investor differs from its common law antecedent, the reasonable person of tort law. The differences identified suggest that the reasonable investor standard is more costly than tort laws reasonable person standard - the uncertainty it generates is …

Carrot Or Stick? The Shift From Voluntary To Mandatory Disclosure Of Risk Factors, Karen K. Nelson, Adam C. Pritchard

Articles

This study investigates risk factor disclosures, examining both the voluntary, incentive-based disclosure regime provided by the safe harbor provision of the Private Securities Litigation Reform Act as well as the SEC's subsequent mandate of these disclosures. Firms subject to greater litigation risk disclose more risk factors, update the language more from year to year, and use more readable language than firms with lower litigation risk. These differences in the quality of disclosure are pronounced in the voluntary disclosure regime, but converge following the SEC mandate as low-risk firms improved the quality of their risk factor disclosures. Consistent with these findings, …

Sec Investigations And Securities Class Actions: An Empirical Comparison, Stephen J. Choi, Adam C. Pritchard

Articles

Using actions with both an SEC investigation and a class action as our baseline, we compare the targeting of SEC-only investigations with class-action-only lawsuits. Looking at measures of information asymmetry, we find that investors in the market perceive greater information asymmetry following the public announcement of the underlying violation for class-action-only lawsuits compared with SEC-only investigations. Turning to sanctions, we find that the incidence of top officer resignation is greater for class-action-only lawsuits relative to SEC-only investigations. Our findings are consistent with the private enforcement targeting disclosure violations at least as precisely as (if not more so than) SEC enforcement.

Rebutting The Fraud On The Market Presumption In Securities Fraud Class Actions: Halliburton Ii Opens The Door, Victor E. Schwartz, Christopher E. Appel

Michigan Business & Entrepreneurial Law Review

In Halliburton Co. v. Erica P. John Fund, Inc. (Halliburton II), the United States Supreme Court reaffirmed the validity of the “fraud on the market” presumption underlying securities fraud class action litigation. This presumption is vital to bringing suits as class actions because it excuses plaintiffs from proving individual reliance on an alleged corporate misstatement on the theory that any public statements made by the company are incorporated into its stock price and consequently relied upon by all investors. Thus, the Court’s decision to uphold the validity of the presumption has been hailed as a significant victory for those …

The Great And Powerful Faa: Why Schwab’S Class Action Waiver Should Have Been Enforced Over Finra’S Rules, Clint Hale

Pepperdine Law Review

This Comment argues that recent Supreme Court precedent, circuit court decisions in contexts similar to FINRA’s oversight of the securities industry, and investors’ true interests all instruct that Schwab’s class action waiver should have been enforced over FINRA’s contrary command. Part II discusses FINRA’s role in the securities industry, the FAA and recent Supreme Court precedent interpreting the FAA, and the FINRA Rules that Schwab’s class action and joinder waiver violated. Part III analyzes why the conflict between the FAA and FINRA’s rules should have been resolved in favor of the FAA and supports this argument with discussion of federal …

Halliburton Ii: A Loser's History, Adam C. Pritchard

Articles

The Supreme Court was presented with an opportunity to bring fundamental reform to securities class actions last term in Halliburton Co. v. Erica P John Fund, Inc.. The Court ducked that opportunity, passing the buck to Congress to undo the mess that the Court had created a quarter century prior in Basic Inc. v. Levinson. Congress's history in dealing with securities class actions suggests that reform is unlikely to come from the legislature anytime soon. The Securities and Exchange Commission appears to be satisfied with the status quo as well. With these institutional actors resisting reform, corporations and …

Form Vs. Function In Rule 10b-5 Class Actions, Amanda M. Rose

Vanderbilt Law School Faculty Publications

The Supreme Court’s widely anticipated decision last term in Halliburton Co. v. Erica P. John Fund, Inc. did little to change the fundamental landscape of securities fraud litigation in the United States. Rule 10b-5 class actions premised on the “fraud-on-the-market” presumption of reliance may still be brought, although it is now clear that defendants may present evidence of lack of price distortion to rebut that presumption at the class certification stage. Halliburton does, however, raise a variety of new questions that will keep plaintiffs’ lawyers and defense counsel fighting for years to come. Determining the answers to these questions will …

Shareholder Litigation Without Class Actions, David H. Webber

Faculty Scholarship

In this Article, I imagine a post-class action landscape for shareholder litigation. Assuming, for the sake of this exercise, an environment in which both securities-fraud and transactional class actions are hobbled by procedural or substantive reforms — most likely through the adoption of mandatory-arbitration provisions or fee-shifting provisions — I assess what shareholder litigation would disappear, what would remain, and what a post-class action landscape would look like. I argue that loss of the class action would remove a layer of legal insulation that prevents institutional investors from having to pursue positive value claims against companies. Currently, the class action …

A Blended Approach To Reducing The Costs Of Shareholder Litigation, Valian A. Afshar

Michigan Law Review

Multiforum litigation and federal securities law class actions impose heavy costs on corporations and their shareholders without producing proportionate benefits. Both are largely the result of the agency problem between shareholders and their attorneys, driven more by the attorneys’ interests in generating fees than by the interests of their clients. In response to each of these problems, commentators have recommended a number of solutions. Chief among them are forum selection and mandatory arbitration provisions in a corporation’s charter or bylaws. This Note recommends that corporations unilaterally adopt both forum selection and mandatory arbitration bylaws to address shareholder lawsuits under state …

Better Bounty Hunting, Amanda M. Rose

Vanderbilt Law School Faculty Publications

The SEC’s new whistleblower bounty program has provoked significant controversy. That controversy has centered on the failure of the implementing rules to make internal reporting through corporate compliance departments a prerequisite to recovery. This Article approaches the new program with a broader lens, examining its impact on the longstanding debate over fraud-on-the-market (FOTM) class actions. The Article demonstrates how the bounty program, if successful, will replicate the fraud deterrence benefits of FOTM class actions while simultaneously increasing the costs of such suits — rendering them a pointless yet expensive redundancy. If instead the SEC proves incapable of effectively administering the …

Opening The Floodgates Of Small Customer Claims In Finra Arbitration: Finra V. Charles Schwab & Co., Inc., Teresa J. Verges

Articles

No abstract provided.

Don't Throw The Baby Out With The Bath Water: The Merits Of The Intermediate Approach To The Securities Litigation Uniform Standards Act, Selby P. Brown

Oklahoma Law Review

No abstract provided.

Judgment Day For Fraud-On-The-Market?: Reflections On Amgen And The Second Coming Of Halliburton, Donald C. Langevoort

Georgetown Law Faculty Publications and Other Works

In November 2013, the Supreme Court granted certiorari in the Halliburton litigation to reconsider, and perhaps overrule, its seminal decision in Basic Inc. v. Levinson. Basic legitimated the fraud-on-the-market presumption of reliance, making securities class actions for claims of false corporate publicity viable, and such cases have become the central mechanisms for private securities fraud litigation. This move came after last Term’s Amgen decision, where four justices signaled their doubts about Basic. This essay looks at the connection between Amgen and the continuing viability of fraud-on-the-market litigation. How Halliburton comes out will likely depend on how the Court …

Setting Attorneys' Fees In Securities Class Actions: An Empirical As, Lynn A. Baker, Michael A. Perino, Charles Silver

Vanderbilt Law Review

n 1995, Congress overrode President Bill Clinton's veto and enacted the Private Securities Litigation Reform Act ("PSLRA"), a key purpose of which was to put securities class actions under the control of institutional investors with large financial stakes in the outcome of the litigation.' The theory behind this policy, set out in a famous article by Professors Elliot Weiss and John Beckerman, was simple: self-interest should encourage investors with large stakes to run class actions in ways that maximize recoveries for all investors. These investors should naturally want to hire good lawyers, incentivize them properly, monitor their actions, and reject …

The Future Of Securities Class Actions Against Foreign Companies: China And Comity Concerns, Dana M. Muir, Junhai Liu, Haiyan Xu

University of Michigan Journal of Law Reform

In Morrison v. National Australia Bank Ltd., the U.S. Supreme Court limited the application of U.S. securities fraud law in transnational situations. The Supreme Court noted that its decision was influenced by international comity considerations. In this Article, we evaluate the availability of class actions in China in cases involving alleged securities fraud. Because we find that the availability of those actions is too limited to fully protect U.S. shareholders, we argue that U.S. investors should be permitted to bring securities fraud class actions against non-U.S. companies whose securities are traded on a U.S. exchange regardless of where those investors …

Securities Class Actions And Bankrupt Companies, James J. Park

Michigan Law Review

Securities class actions are often criticized as wasteful strike suits that target temporary fluctuations in the stock prices of otherwise healthy companies. The securities class actions brought by investors of Enron and WorldCom, companies that fell into bankruptcy in the wake of fraud, resulted in the recovery of billions of dollars in permanent shareholder losses and provide a powerful counterexample to this critique. An issuer's bankruptcy may affect how judges and parties perceive securities class actions and their merits, yet little is known about the subset of cases where the company is bankrupt. This is the first extensive empirical study …

Setting Attorneys' Fees In Securities Class Actions: An Empirical Assessment, Lynn A. Baker, Michael A. Perino, Charles Silver

Faculty Publications

(Excerpt)

In 1995, Congress overrode President Bill Clinton's veto and enacted the Private Securities Litigation Reform Act ("PSLRA"), a key purpose of which was to put securities class actions under the control of institutional investors with large financial stakes in the outcome of the litigation. The theory behind this policy, set out in a famous article by Professors Elliot Weiss and John Beckerman, was simple: self-interest should encourage investors with large stakes to run class actions in ways that maximize recoveries for all investors. These investors should naturally want to hire good lawyers, incentivize them properly, monitor their actions, and …

Is Canada The New Shangri-La Of Global Securities Class Actions?, Tanya J. Monestier

Northwestern Journal of International Law & Business

There has been significant academic buzz about Silver v. Imax, an Ontario case certifying a global class of shareholders alleging statutory and common law misrepresentation in connection with a secondary market distribution of shares. Although global class actions on a more limited scale have been certified in Canada prior to Imax, it can now be said that global classes have “officially” arrived in Canada. Many predict that the Imax decision means that Ontario will become the new center for the resolution of global securities disputes. This is particularly so after the United States largely relinquished this role in Morrison v. …

Shareholder Litigation After The Meltdown, Daniel J. Morrissey

West Virginia Law Review

No abstract provided.

Institutional Activism Through Litigation: An Empirical Analysis Of Public Pension Fund Participation In Securities Class Actions, Michael A. Perino

Faculty Publications

The PSLRA’s lead plaintiff provision enlisted institutional investors to monitor class counsel in order to curb the agency costs endemic in securities class actions. This article uses a sample of 731 settlements to examine the efficacy of this provision. It finds that, even when controlling for institutional self-selection of potentially easier or higher-quality cases, cases with public pension lead plaintiffs have larger recoveries and lower fee requests and fee awards than cases with other lead plaintiff types. The article also finds evidence consistent with the existence of a significant positive externality associated with public pension participation. Over time, fee requests …

Like Moths To A Flame - International Securities Litigation After Morrison: Correcting The Supreme Court's Transactional Test, Marco Ventoruzzo

Faculty Scholarship

Because of the broad jurisdiction American courts have asserted in cases arising under the Securities Exchange Act of 1934, they have been called a Shangri-la for “foreign-cubed” class actions with little connection to the United States. Over the past forty years, the standards used by American courts to determine their jurisdiction in international securities disputes have evolved, culminating in the U.S. Supreme Court’s Morrison decision of 2010. The new transactional test promulgated in Morrison replaced all of its predecessor tests, from a test measuring whether the conduct in question took place in the United States to a test measuring whether …

The Plight Of The Individual Investor In Securities Class Actions, David H. Webber

Faculty Scholarship

Individual investors victimized by securities fraud have no voice in directing class actions brought on their behalf once institutional investors obtain lead plaintiff appointments. The same holds for state-level transactional class actions claiming breaches of fiduciary duty by boards of directors in connection with mergers and acquisitions. In theory, the interests of institutional and individual investors align, nullifying the need for a separate voice for individuals; one rationale for the lead plaintiff modifications of the Private Securities Litigation Reform Act of 1995 was that individuals would benefit from the sophistication of institutional investor lead plaintiffs. But in practice, individual investors’ …

The Emerging Federal Class Actions Brand , John C. Massaro

Cleveland State Law Review

Class actions raise a fundamental question about our judicial system. Is the purpose first and foremost to achieve a societally-desired level of law enforcement and deterrence, or is the primary goal to foster citizen participation in the resolution of private disputes? This Article provides the first extended analysis of this question in light of five recent Supreme Court decisions regarding class actions, the evolution of legislative initiatives in the area, and the docket activity in sixteen of the largest recent federal securities class actions. A single conclusion follows: we are witnessing the emergence of a new national “brand” of class …