Private Securities Litigation Reform Act

Report Shows 2016 Record-Setting Year for Class Action and SEC Settlements

Last week, proxy advisory firm Institutional Shareholders Services (“ISS”) published its semi-annual report of the top 100 U.S. securities class action settlements and top 50 SEC settlements of all time, as of December 31, 2016. The report adds thirteen new class action settlements from last year – making 2016 the most represented year in the report’s settlement rankings – along with two new top SEC settlements.

The ISS report ranks, among other things, the top 100 shareholder class action settlements ever reached in the U.S. for actions filed on or after January 1, 1996, when the Private Securities Litigation Reform Act was implemented. ISS’s June 2017 report reflects that there were 137 court-approved securities class action settlements in the US in 2016, remaining steady with 2015. Notably, however, 13 of the 137 class action settlements were among the top 100 shareholder class action settlements, resulting in a total approved settlement fund of over $5.6 billion, the largest in a single year. The largest of these 13 settlements was in Lawrence E. Jaffe Pension Plan v. Household International, Inc., et al., Case No. 02-CV-05893 (N.D. Ill.), which was based on claims of fraudulent misrepresentations concerning allegedly illegal sales techniques, predatory lending practices, and accounting manipulations. In December 2016, the Northern District of Illinois approved a final settlement fund of $1.58 billion, resulting in the seventh largest securities class action settlement in U.S. history. READ MORE

Storm Warning for Safe Harbor

On February 29, 2016, the Supreme Court denied certification in Harman International Industries Inc. et al. v. Arkansas Public Employees Retirement System et al., thereby leaving unanswered a number of questions related to the Safe Harbor provision of the Private Securities Litigation Reform Act (PSLRA).  The petitioners, defendant Harman International Industries Inc. (“Harman” or “the Company”) and related individual defendants, argued that the D.C. Circuit Court of Appeals erred when it reversed the district court’s decision granting Harman’s motion to dismiss.  In declining to hear the case, the Supreme Court failed to resolve a circuit split concerning the relevance of state of mind to the efficacy of cautionary language.

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Supreme Court Narrows the Scope of SLUSA Preemption, Green-Lighting State Law Class Action Claims Alleging Ponzi Scheme

On February 26, 2014, the U. S. Supreme Court (“the Court”) held that the Securities Litigation Uniform Standards Act of 1998 (“SLUSA”) did not preclude Stanford Ponzi scheme plaintiffs’ state-law class action claims because the claims did not involve covered securities.  The 7-2 majority opinion in Chadbourne & Parke, LLC v. Troice was written by Justice Breyer, joined by Justices Kagan, Sotomayor, Ginsburg, Scalia and Chief Justice Roberts.  Justice Thomas concurred, and Justices Kennedy and Alito dissented.

The Court’s decision is significant because it resolves a long-standing circuit split over the interpretation of the “in connection with” requirement in SLUSA.  As a result of the decision, plaintiffs may increasingly bring state law claims based on investment vehicles that are not covered securities themselves but whose performance implicates or is backed by covered securities.  Investment managers and entities that market such investments, as well as lawyers and accountants, may face an increased risk of liability as a result of this decision. READ MORE

Rare Securities Trial Over Credit Crises Claims Results in Defense Verdict

On May 28, 2013, in Delshah Group LLC v. Javeri, a rare securities trial regarding credit-crisis related claims, Judge Katherine B. Forrest of the United States District Court for the Southern District of New York issued an order directing a complete defense judgment following a two-week bench trial. The decision includes a noteworthy discussion and analysis of loss causation in the context of credit crisis litigation—directly applicable to pending cases under Sections 10, 11 and 12—and highlights a tension between the Private Securities Litigation Reform Act and longstanding securities law when it comes to proving culpable intent.

Factual Background

The case arose from a real estate investment gone bad. In March of 2007, plaintiff purchased interests in a venture called 40 Broad Street Project. That project sought to make a return on converting commercial real estate space into condominiums and thus take advantage of the rapidly rising value of condos in New York City. Plaintiffs claimed that defendant misrepresented how far along the building project was, whether it was under budget, and how much “skin in the game” defendants had in the project. When the credit crisis hit and the real estate market collapsed, plaintiff lost substantial sums on its investment and claimed the above misstatements were its cause. READ MORE