In late November 2006, the Committee on Capital Markets Regulation (known as the Paulson Committee) published a report warning that the United States was losing its position as the world’s foremost public equity capital market. The committee’s conclusion garnered national attention and prompted limited, but high-profile, regulatory reforms. Less fully appreciated, however, is the Supreme Court’s role in confronting the issue in the context of securities class action litigation.
While pervasive in this country, private securities class actions are rare in countries that are our major capital market competitors, like the United Kingdom. Among its many denouements, the committee concluded that skyrocketing settlement values and the unpredictability inherent in private securities litigation imposes substantial costs that dampen the competitiveness of U.S. markets. In particular, conflicting interpretations of the materiality, scienter and reliance elements of Rule 10b-5 by courts across the country increase transaction and uncertainty costs and deter foreign companies from listing here.
