Class Actions Brief Blog

The Private Securities Litigation Reform Act (“PSLRA”) establishes special rules in securities class actions. One such rule, found in 15 U.S.C. Sect. 78u-4(a)(3)(B)(vi) and known as the “Five-in-Three Provision,” prevents a “person” from serving as a lead plaintiff in “more than 5 securities class actions” during any three-year period. Does that rule, though, apply to institutional investors? The plain words of the statute certainly suggest so—it is difficult to argue that an institutional investor is not a “person,” and had Congress wanted to ...

Earlier this year, we reported that Multiple Studies Show Increase in Securities Class Actions. Cornerstone Research, one of the groups covered in our earlier report, recently issued its 2016 Midyear Assessment. This new analysis, which covers cases filed in January through June of this year, is consistent with several of the trends we reported previously, including the increasing number of securities class actions, the rise in the number of cases against smaller companies, and the increase in the number of Fourth Circuit cases.

Of particular interest is the significant increase ...

Recent studies by PricewaterhouseCoopers, NERA Economic Consulting, Cornerstone, and Kevin LaCroix of D&O Diary have all found that federal securities class actions are on the rise. According to PwC, the data shows a trend towards more cases filed against smaller companies, especially for claims regarding accounting irregularities. Smaller companies also face a significant risk of claims regarding inadequate internal controls over financial reporting, likely due to their smaller size and more limited resources.

NERA found that standard federal securities class actions ...

In two recent studies of shareholder class actions over corporate mergers, the authors reached conclusions consistent with our experience with such cases in North Carolina: that nearly every acquisition of a public company results in shareholder litigation. The Cornerstone Research report found that 93% of public company acquisitions were challenged. Takeover Litigation in 2014, a separate study by Matthew Cain of the SEC and Steven Solomon of UC Berkeley, found that 94.9 of deals were challenged. (The two studies used slightly different cutoffs for their samples.)

Both ...

Early in May, we reported on the Supreme Court’s review of the Basic v. Levinson presumption of reliance in securities fraud cases. In an opinion today by Justice Roberts, the Court declined the invitation to overrule Basic's presumption of reliance in an efficiently traded market. Three justices (Thomas, Scalia and Alito) were prepared to overrule Basic. The majority held that there was no “special justification” to overrule Basic, noting the absence of “the kind of fundamental shift in economic theory that could justify overruling a precedent on the ground that it ...

It is difficult to understate the effect on class actions of Basic Inc. v. Levinson, 485 U.S. 224 (1988), which the Supreme Court decided in 1988. It is virtually impossible to demonstrate “reliance” – a key element of most securities’ fraud claims – on a class-wide basis. Indeed, if reliance is a part of the substantive proof required for the class claims, that usually presents a ticket for dismissal of those claims and a denial of class certification. But in Basic, the Supreme Court bridged that gap, reasoning that the stock market was “efficient,” and therefore would ...