PricewaterhouseCoopers’ annual study of securities class action litigation issued on April 1 found that “for the first time since the 1995 Private Securities Litigation Reform Act (PSLRA), in 2008 the plaintiffs’ bar filed more federal securities lawsuits against the financial services industry group (banking, brokerage, financial services and insurance) than any other industry.” The report added that securities litigation activity in 2009 will reflect a new era of accountability and oversight, particularly if the regulatory environment is overhauled, as most think is inevitable.
In Case v. Borak , 377 U.S. 426 (1964), the U.S. Supreme Court acknowledged that the “private enforcement” of securities regulations “provides a necessary supplement to commissions (SEC) action.” However, the court has issued at least four opinions that tighten requirements for private litigation over securities subject to the Securities and Exchange Commission: Central Bank v. First Interstate Bank , 511 U.S. 164 (1994): no liability for merely aiding and abetting, liability only for one who “employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies”; Dura Pharmaceuticals v. Broudo , 544 U.S. 336 (2005): need for direct link between plaintiffs’ economic loss and the alleged misrepresentation by defendant; Tellabs v. Makor , 551 U.S. 308 (2007): allegation of facts that might cause a “reasonable person” to infer fraudulent intent is insufficient, inferences of wrongdoing must be “cogent, and at least as compelling as any opposing inferences of non-fraudulent intent”; and Stoneridge Investment Partners v. Scientific-Atlanta , 552 U.S. 148 (2008): behavior by third party that was deceptive but not “communicated to the investing public during the relevant times” is not actionable as securities fraud.
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