Law and Order: The Case behind Securities Class Action Reform

Sep 27, 2007
B-338 Rayburn House Office Building

Event Video


Adam C. Pritchard
Professor of Law
Univeristy of Michigan 

Securities class action lawsuits allow investors to hold public companies responsible for a number of issues like fraud or other spurious practices.  The number of such suits spiked after the Supreme Court gave them the green light in Basic v. Levinson in 1987.  This essentially eliminated the reliance requirement, making class actions much easier to bring to trial.  Congress attempted to weed out the more frivolous of the lawsuits when it passed the Private Securities Litigation Reform Act of 1995. 

Despite that legislation, the number of securities class actions has stayed relatively constant, ranging from 150 to 200 per year with judges still having to dismiss about 25% of the suits.  Experts agree the amount of frivolous suits substantially increases the cost of doing business in America.  Consequently, a number of studies have identified the possibility of securities fraud class actions as one factor limiting the competitiveness of U.S. capital markets.  Foreign companies cite the fear of securities class actions as one of the top reasons for not listing their shares on the New York Stock Exchange or NASDAQ.  

Professor Adam C. Pritchard, Professor of Law at the University of Michigan, will host a one-day course examining securities class action reform.  He will draw upon his current research to address the following questions:

  • What are the economics underlying securities fraud class action lawsuits, and what are their costs and benefits?
  • How effective are such suits in actually providing compensation to investors and deterrence to wrongdoers? 
  • What incentives do securities class actions give to investors, public companies, auditors, investment bankers, and lawyers?
  • What reforms are available to address the costs of securities class actions?  Are those reforms practically and politically feasible?