WASHINGTON, D.C. – The securities class action litigation system is not working the way Congress intended it to work when it passed the Private Securities Litigation Reform Act (PSLRA) of 1995, according to a paper released today by the U.S. Chamber Institute for Legal Reform (ILR).
“The PSLRA, which was designed to protect the average American investor, has been subverted by entrepreneurial plaintiffs’ lawyers,” said Thomas J. Donohue, President and CEO of the U.S. Chamber of Commerce. “The system needs to be repaired.”
While the PSLRA has addressed a number of flaws in the system, a changing litigation climate and plaintiffs’ bar efforts to skirt the law have nullified some of its most critical reforms. ILR is concerned that lawyers – not plaintiffs – are driving litigation; that meritless claims may be allowed to proceed; that motions to dismiss are not handled fairly; and that trial lawyer attempts to expand liability for individual directors are deterring qualified outside directors from serving on corporate boards. Further, an ILR study released last fall, The Economic Reality of Securities Class Action Litigation, reveals that the securities litigation system often overcompensates large institutional investors and doesn’t fully protect smaller, more vulnerable investors.
“Repairing the system so that it works to the maximum benefit of shareholders, especially small individual investors, without causing undue harm to business and the economy is the only way to restore fairness and commonsense to securities litigation,” concluded Donohue.
ILR’s paper was presented at a Chamber forum entitled Private Securities Litigation Ten Years After the PSLRA: What’s Working? What’s Not? The conference featured a high level, bipartisan lineup of speakers including Sen. Christopher Dodd (D-CT) and SEC Commissioners Paul Atkins and Roel Campos.
The mission of the Institute for Legal Reform is to make America’s legal system simpler, fairer and faster for everyone. The U.S. Chamber of Commerce is the world’s largest business federation, representing more than three million businesses and organizations of every size, sector and region.