February 25, 2019

Containing the Contagion: Proposals to Reform the Broken Securities Class Action System

Following on the heels of the Institute for Legal Reform’s 2018 research on the “Rising Threat” of securities class actions, this paper provides the most up-to-date picture of the broken state of America’s securities class action system and makes an urgent call for reform. The research points to a number of regulatory and legislative solutions that the Securities and Exchange Commission (SEC) and Congress can adopt to address the problem.

The paper advocates for the SEC to:

  • Undertake a project to evaluate the state of private securities class action litigation, with a focus on abusive practices
  • Issue a policy paper acknowledging the scope of the securities class action problem
  • Institute a program of amicus brief filings informing federal courts of the serious nature of this problem, and urging them to intervene early to prevent cases from being used to extort unjustified attorneys’ fees

The research also calls on Congress to:

  • Enact an “Investors’ Bill of Rights” that would prohibit plaintiffs’ lawyers from exercising control over these lawsuits by requiring disclosure of relationships between the lawyers and the plaintiffs, barring individuals from serving as plaintiff in more than five cases in 36 months, and requiring federal courts to more closely scrutinize fee requests
  • Amend the Private Securities Litigation Reform Act of 1995 to adjust for plaintiffs’ lawyer workarounds that have emerged in the last 25 years
  • Adopt a cap on damages for non-IPO cases, with small investors given priority to collect damages
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