Private Securities Litigation Reform Act

Private Securities Litigation Reform Act

Private Securities Litigation Reform Act

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The United States Private Securities Litigation Reform Act of 1995, Pub. L. 104-67, 109 Stat. 737 (codified as amended in scattered sections of 15 U.S.C.) ("PSLRA") implemented several substantive changes affecting 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, then use pretrial discovery to seek further proof. This set a very low barrier to initiate litigation, which encouraged the filing of suits which were either weak or entirely frivolous. Defending these suits could prove extremely costly, even where the charges were unfounded, and as a result, defendants often found it cheaper to settle than to fight and win. Under the PSLRA, however, plaintiffs need proof of fraud before they can initiate a suit. This makes it very difficult to file a frivolous suit, but it also makes it much harder to file legitimate ones, as plaintiffs are forced to present evidence of fraud before any pretrial discovery has taken place.

The PSLRA imposes new rules on securities class action lawsuits. It allows judges to decide the most adequate plaintiff in class actions. It mandates full disclosure to...
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