“Cyan,” Reverse-“Erie,” and the PSLRA Discovery Stay in State Court

In the wake of the Supreme Court’s holding in Cyan, Inc. v. Beaver County Employees Retirement Fund[1] that state courts have concurrent jurisdiction over Securities Act claims, even if asserted as class actions, there has been an influx of Securities Act class actions filed in state courts. A key question has divided courts and commentators: Does the Private Securities Litigation Reform Act (“PSLRA”) discovery stay apply in state court? For example, in September 2018, a Superior Court in California held that the stay did not apply in state court,[2] while in May 2019 a Superior Court in Connecticut … Read more

Prosecuting Securities Fraud Under Section 17(a)(2)

Traditionally, securities fraud has been civilly enforced under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, and criminally prosecuted under Section 32 of the Exchange Act. Recently, however, the SEC has increasingly asserted claims under Section 17(a)(2) of the Securities Act for conduct that sounds in securities fraud. Moreover, because violations of Section 17 are criminalized under Section 24 of the Securities Act, an increasing number of securities fraud prosecutions may be pursued under Section 17(a)(2). Yet, unlike the elements of securities fraud under Rule 10b-5, many of the elements of Section 17(a)(2) violations remain unsettled, and … Read more

RICO 2.0: State RICO Statutes in Opt-Out Securities Litigation

The rise and fall of federal RICO claims in securities litigation is well-known. During the 1980s and early 1990s, plaintiffs increasingly asserted RICO claims premised on alleged securities fraud, drawn by the potential for treble damages. In 1995, however, Congress enacted a securities fraud carve-out as part of the PSLRA. Private RICO claims cannot be premised on conduct that sounds in securities fraud, except in the rare circumstance where a defendant has been criminally convicted in connection with the fraud.

Likewise, the rise, fall, and (more recent) rise of state securities litigation is an oft-discussed story. In the aftermath of … Read more

False Statements of Belief as Securities Fraud

Is a CEO’s statement that “I believe the TVs we manufacture have the highest resolution on the market” potentially actionable as an “untrue statement of material fact” under § 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder? If so, how does this statement map onto the elements of securities fraud? Must the CEO actually disbelieve the statement? Must the matter addressed in the opinion—i.e., the resolution of the company’s TVs—actually be false? How does the CEO’s belief or disbelief intersect with the element of scienter? What portion of this statement must be material to investors—the CEO’s expression … Read more

Burdens of Production and Persuasion on Price Impact After Halliburton II

The following post comes to us from Wendy Gerwick Couture, Associate Professor at the University of Idaho College of Law.  It is based on her recent paper entitled “Answering Halliburton II’s Unanswered Question: Burdens of Production and Persuasion on Price Impact,” which is forthcoming in the Securities Regulation Law Journal and is available here.

In Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398, 2407 (2014), the Supreme Court held that a defendant can rebut the fraud-on-the-market presumption of reliance at class certification by showing the absence of price impact.  As Professor … Read more

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The PSLRA Discovery Stay in Complex Litigation

The following post comes to us from Wendy Gerwick Couture, Associate Professor at the University of Idaho College of Law.  It is based on her recent paper entitled “The PSLRA Discovery Stay Meets Complex Litigation: Five Questions Answered,” which is forthcoming in the Securities Regulation Law Journal and is available here.

Congress enacted the PSLRA discovery stay nearly 20 years ago in order to prevent fishing-expedition and extortive discovery.  The statute states that “all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss.”  The stay applies in a straightforward fashion in simple cases … Read more

The Circularity of Materiality

The following post comes to us from Wendy Gerwick Couture, Associate Professor at the University of Idaho College of Law.  It is based on her recent paper entitled “Materiality and a Theory of Legal Circularity,” which is forthcoming in the University of Pennsylvania Journal of Business Law and is available here.

I will assume that you, as a reader of this blog, are a reasonable investor. As such, would you find a prediction of future growth coupled with cautionary language to be important when making an investment decision? How about a CEO’s statement that the company is “well-positioned” to … Read more