Recent Trends in Securities Litigation

1. Originally Published in SEC Disclosure and Accounting Conference course Materials
   By Glasser LegalWorks
   Copyright © 1999 Glasser LegalWorks. All Rights Reserved.
   
   
2. Statistical Lessons of 1998 and Beyond ²
3. 1. At least 235 companies were named as defendants in federal class action securities fraud lawsuits filed in 1998.
   2. The volume of federal class action securities fraud lawsuits filed in 1998 breaks the prior record of 227 companies sued in 1994. It also indicates a litigation rate of close to "one-a-day" for every trading day that the stock market is open.
   3. Cendant Corp., which was the defendant in at least 70 class action securities fraud complaints, holds the dubious honor of being the most frequently sued company in 1998.
   4. From the Enactment of the Reform Act on December 22, 1995 to March 31, 1999.
   5. 1. 590 companies were sued in federal court for securities fraud.
      2. The high technology industry was the most frequently sued industry.
      3. The United States District Court for the Northern District of California was the most active district court.
      4. 59% of the suits alleged accounting fraud.
      5. 55% of the suits alleged insider sales during the class period.
4. Private Securities Litigation Reform Act of 1995 ("Reform Act")
5. 1. Retroactive Application of the Reform Act.
   2. 1. The Reform Act does not apply to actions commenced before or pending as of December 22, 1995.
      2. Some courts have held that the Reform Act applies to conduct that happened prior to December 22, 1995. See In re Stratosphere Sec. Litig., 1 F. Supp.2d 1096, 1105 (D. Nev. 1998) (holding that Reform Act applies to pre-enactment conduct); In re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746, 754 (N.D. Cal. 1997) (same).
   3. The Reform Act's "Safe Harbor" for Forward-Looking Statements.
   4. 1. The Reform Act created a "safe harbor" for certain forward-looking statements.
      2. The safe harbor provisions apply to all private securities actions arising under the 1933 Securities Act and the 1934 Exchange Act. 15 U.S.C. § 77z-2(c)(1)(B) (1933 Securities Act); 15 U.S.C. § 78U-5(c)(1)(B) (1934 Exchange Act).
      3. The Reform Act raised the scienter requirement where a forward-looking statement forms the basis of the claim.
      4. 1. For forward-looking statements, the required state of mind is actual knowledge – i.e., the defendant needs to have made the statement knowing it to be false, not merely with reckless disregard for the truth. 15 U.S.C. § 78u-5(c)(1)(B); see also In re Health Management, Inc. Sec. Litig., 970 F. Supp. 192, 201 (E.D.N.Y. 1997) (discussing Reform Act's "safe harbor provision imposing liability for forward looking statements if such are made with actual knowledge that the statement was false or misleading.").
         2. As scienter is only established by actual knowledge of falsity, plaintiffs fail to state a claim when they merely plead that a defendant recklessly spoke in making a purportedly false forward-looking statement.
      5. The Reform Act codified the "bespeaks caution" doctrine.
      6. 1. A securities fraud action cannot be predicated on a forward-looking statement which is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement. 15 U.S.C. § 78U-5(c)(1)(A)(i).
         2. A securities fraud action cannot be predicated on a forward-looking statement which is immaterial. 15 U.S.C. § 78U-5(c)(1)(A)(ii)
      7. Forward-looking statements include: projections of revenues; plans and objectives of management for future operations; future economic performance; assumptions underlying economic projections and plans. 15 U.S.C. § 77z-2(i)(1).
      8. The safe harbor provision does not apply in a number of significant contexts, including initial public offerings. 15 U.S.C. § 77z-2(b).
      9. Within the safe harbor section, the Reform Act provides that "[n]othing in this section shall impose upon any person a duty to update a forward-looking statement." 15 U.S.C. § 78U-5(d). The practical consequences of this provision remain unclear, but Judge Posner at least suggested that it might eliminate any duty to update. See Eisenstadt v. Centel Corp., 113 F.3d 738 (7th Cir. 1997) (in a non-Reform Act case suggesting that Reform Act eliminated duty to update).
   5. The Reform Act Raised the Standard for Pleading Fraud.
   6. 1. In enacting the Reform Act, Congress noted that a "uniform and more stringent" pleading standard for securities fraud claims is necessary "to curtail the filing of meritless lawsuits." Joint Conference Report on Private Securities Litigation Reform Act, H.R. Conf. Rep. No. 104-369, at 41 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 640.
      2. The Reform Act requires that the complaint specify for each statement forming the basis of an Exchange Act claim, "the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78U-4(b)(2).
      3. To state a claim for fraud based on a violation of GAAP, plaintiffs must allege facts showing that a defendant-company's financial statements failed to comply with GAAP and that the defendant-company knew or was reckless in not knowing this failure. In re Westinghouse Sec. Litig., 90 F.3d 696, 712 (3d Cir. 1996). It is not enough simply to allege generally that financial statements failed to follow GAAP.
      4. Courts have found that pursuant to its more rigorous requirements for pleading fraud, the Reform Act necessarily abolished the so-called "group published information doctrine." In re Home Health Corp. of America, Inc. Sec. Litig., 1999 WL 79057 (E.D. Pa. Jan. 29, 1999) (holding that "the group published information doctrine is inconsistent with the PSLRA's pleading requirments, and, thus, that specific allegations as to the actions and scienter of each defendant are necessary"); Allison v. Brooktree Corp., 999 F. Supp. 1342, 1350 (S.D. Cal. 1998) (holding that group publication doctrine is inconsistent with Reform Act's pleading requirements).
      5. While the Reform Act did not raise the pleading standard for claims under Sections 11 and 12(2), courts have held that plaintiffs must satisfy the pleading requirements of FRCP 9(b) where a section 11 or 12(2) claim properly sounds in fraud, not negligence. See, e.g., In re Stac Elec. Sec. Litig., 89 F.3d 1399 (9th Cir. 1996); Melder v. Morris, 27 F.3d 1097, 1100 n.6 (5th Cir. 1994); Shapiro v. UJB Fin. Corp., 964 F.2d 272 (3d Cir. 1991), cert. denied, 113 S. Ct. 365 (1992).
      6. 1. FRCP 9(b) requires that plaintiffs plead fraud "with particularity," specifying the time, place and manner of the alleged fraudulent misrepresentations.
         2. 1. Courts interpreting FRCP 9(b) have found that it requires plaintiffs to: specify the statements alleged to be fraudulent; identify the speaker; state where and when the statements were made; and explain why the statements were fraudulent. Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994). Thus, the pleading requirements imposed by FRCP 9(b) are in large measure coterminous with those imposed by the Reform Act.
            2. Where multiple defendants are involved, the complaint must specify which defendant made which allegedly false statement. Sears v. Likens, 912 F.2d 889 (7th Cir. 1990). Some courts, however, have permitted "group pleading" attributing misrepresentations to management and inside directors, but usually not as to outside directors. See Blake v. Dierdorff, 856 F.2d 1365, 1369 (9th Cir. 1988).
         3. Requiring plaintiffs to satisfy FRCP 9(b) where a section 11 or 12(2) claim is deemed to sound in fraud may lead counsel not to plead a § 10(b) claim in cases where they can assert a viable section 11 or 12(2) claim – the introduction of § 10(b) elements might unnecessarily convert the section 11 or 12(2) claims into fraud, not negligence claims. However, even where plaintiffs only plead claims under the 1933 Act, courts will evaluate whether those claims properly sound in fraud, and if they do, will require plaintiffs to satisfy FRCP 9(b). See In re Anchor Gaming Sec. Litig., 33 F. Supp.2d 889, 892 (D. Nev. 1999).
   7. The Reform Act Raised the Standard for Pleading Scienter.
   8. 1. Federal Rule of Civil Procedure 9(b). ^N3
      2. 1. FRCP 9(b) provides with respect to pleading state of mind that "[m]alice, intent, knowledge and other condition of mind of person may be averred generally."
         2. The Second, Fifth, and Seventh Circuits interpreted FRCP 9(b) to require that plaintiffs in securities fraud actions plead facts giving rise to a "strong inference of fraudulent intent." See, e.g., Tuchman v. DSC Communications Corp., 14 F.3d 1061, 1068 (5th Cir. 1994); In re Time Warner Sec. Litig., 9 F.3d 259, 263 (2d Cir. 1993); DiLeo v. Ernst & Young, 901 F.2d 624, 629 (7th Cir. 1990).
         3. The Second Circuit held that the "strong inference of fraudulent intent" can be established by alleging facts to show either that the defendant had the motive and opportunity to commit fraud or which constituted strong circumstantial evidence of conscious misbehavior or recklessness. Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994).
         4. The Ninth Circuit interpreted FRCP 9(b) only to require that plaintiffs allege scienter generally. In re GlenFed Inc., Sec. Litig., 42 F.3d 1541, 1545 (9th Cir. 1995).
      3. At a Minimum, the Reform Act Codified the Second Circuit's "Strong Inference" Standard for Pleading Scienter.
      4. 1. For Exchange Act claims, the Reform Act requires that plaintiffs "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u-4(b)(2) (emphasis added).
         2. All courts agree that the Reform Act's "strong inference" language, at a minimum, codified the Second Circuit's decisions under FRCP 9(b). Accordingly, plaintiffs plead facts giving rise to a "strong inference" of fraudulent intent when they plead either that the defendant had motive and opportunity or facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.
         3. 1. Insider trading – that is, stock sales by company insiders – have proven to be an extremely popular means for plaintiffs to plead motive. In fact, 57% of the post-Reform Act cases allege insider stock sales compared to 21% of the pre-Reform Act cases. Joseph A. Grundfest and Michael A. Perino, Securities Litigation Reform: The First Year Experience (1997).
            2. 1. The Second Circuit has held that in pleading motive, it is relevant if insiders sell shares between the time of purported misrepresentations, but before disclosing the "true facts." Shields v. Citytrust Bancorp, Inc., 25 F.3d 1134, 1130 (2d Cir. 1994).
               2. Insider trading, standing alone, however, has usually been rejected as a sufficient basis upon which to establish a strong inference of fraud, courts having required additional indicia of scienter. See, e.g., Friedberg v. Discreet Logic, Inc., 959 F. Supp. 42 (D. Mass. 1997); Wenger v. Lumisys, Inc., 2 F. Supp.2d 1231, 1251 (N.D. Cal. 1998). This is particularly true where the sales are not "unusual or suspicious." Head v. Netmanage, Inc., Fed. Sec. L. Rep. &#para; 90,412 (N.D. Cal. 1998); In re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746, 767 (N.D. Cal. 1997).
               3. Courts have found that plaintiffs failed to create a strong inference of scienter where the majority of insider stock sales were completed before defendants made the allegedly false statements. See Hockey v. Medhekar, No. C-96-0815 MHP, 1997 U.S. Dist. LEXIS 8558 (N.D. Cal. Apr. 15, 1997).
               4. Interestingly, courts have also held that the absence of insider stock sales can negate a strong inference of scienter. See, e.g., Allison v. Brooktree Corp., 999 F. Supp. 1342 (S.D. Cal. 1998); Havenick v. Network Express, Inc., 981 F. Supp. 480 (E.D. Mich. 1997).
            3. The insider trading that plaintiffs typical rely upon to show motive must be distinguished from the criminal variety where an insider trades on nonpublic information.
            4. 1. In United States v. O'Hagan, 117 S. Ct. 2199 (1997), the Supreme Court adopted the so-called "misappropriation" theory, holding that trading on the basis of material, nonpublic information obtained in breach of a duty to the information source constitutes a violation of Rule 10b-5. This is different from the more traditional theory of insider trading which relates to corporate insiders trading on the basis of material, nonpublic information because that relationship gives rise to a duty to disclose (or abstain from trading) in order to prevent a corporate insider from taking unfair advantage of uninformed shareholders. Id. at 2207.
               2. "Insider information" generally consists of information that comes from within a corporation and is intended for a corporate purpose, such as data concerning corporate finances and operations.
               3. The Basic v. Levinson, 485 U.S. 224 (1988), traditional definition of materiality (a necessary element of the claim) applies to insider information – i.e., the information is material if there is a substantial likelihood that a reasonable shareholder would consider it important.
               4. Scienter is a necessary element of an insider trading claim. Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976).
               5. Insiders normally include: directors, officers, and major security holders; lower-level employees who obtain information through their jobs; outside professionals and advisers who obtain information through their work for the company.
            5. Allegations of motive based upon fear that the company would otherwise lose its access to the capital markets and because the value of defendants' personal stock holdings would have been hurt have been held insufficient to create a strong inference of fraud. Rehm v. Eagle Fin. Corp., 954 F. Supp. 1246, 1253 (N.D. Ill. 1997).
            6. Allegations of motive based on the defendants' purported desire "to protect their executive positions and the compensation and prestige they enjoy thereby" have been held insufficient to create a strong inference of fraud. Shields., 25 F.3d at 1130; see also In re HealthCare Compare Corp. Sec. Litig., 75 F.3d 276, 284 (7th Cir. 1996) ("plaintiffs offer no facts to support the necessary inference that the defendant officers were in danger of losing their positions based on a revised earnings estimate for the fiscal year.").
            7. Illogical speculation about motive is insufficient to create a strong inference of fraud. Zeid v. Kimberly, 973 F. Supp. 910, 923 (N.D. Cal. 1997).
            8. In Press v. Chemical Invest. Servs. Corp., 166 F.3d 529 (2d Cir. 1999), the Second Circuit recently found that allegations that a broker was motivated to make fraudulent representations because of a desire to keep possession of proceeds from a treasury bill were sufficient when combined with opportunity allegations to create a strong inference of fraud. The court found that, "[w]hile this is the barest of all pleading that would be acceptable, we cannot take this issue of fact from the finder of fact."
         4. Some courts have found that the Reform Act raised the pleading standard for scienter beyond that which would have satisfied the Second Circuit's standard under FRCP 9(b). These courts have held that plaintiffs can no longer plead scienter simply by alleging motive and opportunity – put differently, pleading motive and opportunity does not create a "strong inference" of fraud.
         5. 1. In In re Baesa Sec. Litig., 969 F. Supp. 238 (S.D.N.Y. 1997), Judge Rakoff succinctly addressed this issue: the "second question is whether the Reform Act makes the pleading of 'motive and opportunity' no longer automatically sufficient in this Circuit to raise the required 'strong inference' of fraudulent scienter. The answer is yes." Judge Rakoff went on to note that while motive and opportunity are no longer "automatically" sufficient to create a strong inference of fraud, they might "be relevant to pleading circumstances from which a strong inference of fraudulent scienter may be inferred." See also In re Health Management, Inc. Sec. Litig., 970 F. Supp. 192, 201 (E.D.N.Y. 1997) (agreeing with Judge Rakoff's opinion in Baesa); Norwood Venture Corp. v. Converse Inc., 959 F. Supp. 205, 208-09 (S.D.N.Y. 1997) (motive and opportunity without more, no longer suffices to raise a strong inference of scienter).
            2. In In re Silicon Graphics, Inc. Sec. Litig., 970 F. Supp. 746, 757 (N.D. Cal. 1997) ("Silicon Graphics II"), Judge Smith held that "[m]otive, opportunity, and non-deliberate recklessness may provide some evidence of intentional wrongdoing, but are not alone sufficient to support scienter unless the totality of the evidence creates a strong inference of fraud." An appeal from Judge Smith's ruling in Silicon Graphics II is pending before the Ninth Circuit. In its amicus brief, the SEC maintains that Judge Smith erred in two ways. First, by finding that motive and opportunity, standing alone, is not sufficient to create a strong inference of fraud. Second, to the extent that Judge Smith found that the Reform Act eliminated recklessness as an actionable state of mind (i.e., the Reform Act requires something more, what Judge Smith calls, "deliberate recklessness"). The American Electronics Association has also filed an amicus brief in support of Judge Smith's finding that pleading motive and opportunity does not create the required strong inference of fraud.
         6. Other courts have found that, under the Reform Act, plaintiffs can still create a strong inference of fraud by pleading motive and opportunity. See, e.g., Press v. Chemical Invest. Servs. Corp., 166 F.3d 529 (2d Cir. 1999). Press appears to resolve the issue for the Second Circuit, coming down on the side of the sufficiency of a motive and opportunity pleading. See also Marksman Partners, L.P. v. Chantal Pharm., Corp., 927 F. Supp. 1297 (C.D. Cal. 1996) (holding motive and opportunity still viable way to plead scienter after Reform Act); S. Rep. 105-182 to accompany S. 1260 (May 4, 1998) (legislative history for the Securities Litigation Uniform Standards Act of 1998 indicating that the Reform Act intended to codify the Second Circuit's scienter pleading standard, not raise it to exclude pleading motive and opportunity).
         7. Failure to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind mandates dismissal." 15 U.S.C. § 78U-4(3)(A).
         8. When a claim is predicated upon purported accounting fraud, mere failure to follow GAAP is insufficient to establish scienter. In re Software Toolworks Inc., 50 F.3d 615, 627-28 (9th Cir. 1994).
   9. Loss Causation for § 12(a)(2) Claims under the Securities Act.
   10. 1. Section 12(a)(2) of the 1933 Securities Act imposes liability on anyone who offers or sells a security by means of a prospectus or oral communication which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statement, in the light of the circumstances under which it was made, not misleading. 15 U.S.C. § 77l(a)(2).
       2. Under the Reform Act, a defendant liable under § 12(a)(2) is only responsible for the portion of recoverable damages attributable to the misstatement. The defendant bears the burden of proof on this point. 15 U.S.C. § 77l(b).
   11. Stay of Discovery.
   12. 1. All discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds that particularized discovery is necessary to preserve evidence or prevent prejudice. 15 U.S.C. § 77z-1(b)(3).
       2. Rules of Civil Procedure initial disclosures.
       3. 1. FRCP 26(a)(1) requires defendants to furnish plaintiffs with certain information, including: the name, address, and telephone number of each individual likely to have discoverable information relevant to disputed facts alleged with particularity in the pleadings; and a copy or a description and the location of all documents in defendants' possession or control relevant to the same disputed facts.
          2. FRCP 26(f) provides for a meeting of the parties at which they are to agree on when the mandatory disclosures made pursuant to FRCP 26(a)(1) shall be made, and the extent and timing of additional discovery.
          3. While Judge Patel found in Hockey v. Medhekar, 1996 U.S. Dist. LEXIS 9993 (N.D. Cal. July 11, 1996) that the Reform Act's stay pending disposition of a motion to dismiss did not apply to the disclosures mandated by Rule 26, the Ninth Circuit disagreed and issued a writ of mandamus requiring the district court to stay the disclosures mandated by Rule 26 pending a decision on the pending motion to dismiss. Medhekar v. U.S. Dist. Court. for the Northern Dist. of Cal., 1996 U.S. App. LEXIS 28122 (Oct. 31, 1996).
       4. This provision helps to control the substantial costs of litigation normally associated with the voluminous discovery that accompanies the early stages of securities litigation.
   13. Limits on Liability.
   14. 1. The Reform Act eliminated joint and several liability for reckless violations. Thus, joint and several liability is only appropriate where the fact finder specifically finds a violation to have been "knowing." 15 U.S.C. § 78U-4(g)(2)(A).
       2. The Reform Act limits a defendant's liability to his or her proportional percentage of fault. 15 U.S.C. § 78U-4(g)(2)(B).
6. The Securities Litigation Uniform Standards Act of 1998 ("USA")
7. 1. Preemption of State Common and Statutory Law Claims.
   2. 1. SLUSA precludes state common or statutory law actions based on an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security, or upon allegations that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security. 15 U.S.C. § 77p(b) (Securities Act), 15 U.S.C. 78bb(f)(1) (Exchange Act).
      2. A "covered action" under the SLUSA includes any single action for damages brought on behalf of more than 50 persons or a class in which common questions of or fact predominate over any question affecting individuals or members of the class.
   3. Key Provisions of SLUSA .
   4. 1. Removal to federal court. Any action covered by SLUSA that is brought in state court after the effective date of the act (November 3, 1998) shall be removable to the federal district for the district in which the action is pending. 15 U.S.C. § 77(p)(c).
      2. Discovery stay. SLUSA empowers a federal court to "stay discovery proceedings in any private action in a State court, as necessary in aid of its jurisdiction or to protect or effectuate its judgements." 15 U.S.C. § 77p(f)(4). This provision complements the Reform Act's discovery stay.
   5. Exceptions to SLUSA.
   6. 1. The act only applies to private securities actions and, thus, a State (or political subdivision) can still maintain a state court action on its own behalf. 15 U.S.C. § 77p(d)(2), 15 U.S.C. § 78bb(f)(3)(B).
      2. State law derivative actions can still be brought by private plaintiffs in state court. 15 U.S.C. § 77p(f)(2)(B), 15 U.S.C. § 78bb(f)(5)(C). These claims, however, are not usually brought as class actions.
      3. State class action claims based upon the law of the state of incorporation, which involve either issuer self-tenders or proxy battles involving tender or exchange offers or the exercise of dissenters' or appraisal rights. 15 U.S.C. § 77p(d)(1), 15 U.S.C. § 78bb(f)(3)(A). This exception can ultimately prove significant. The Delaware Supreme Court in Malone v. Brincat, 722 A.2d 5 (Del. 1998), while holding that the SLUSA did not apply because in that case the action was commenced before passage of the statute, nevertheless gave an expansive reading of the state law claim of breach of fiduciary duty to include conduct normally viewed as amounting to a breach of the duty to disclose. This could serve as a basis for putting a wide range of actions outside the reach of SLUSA.
   7. SLUSA's Impact on Pleading Scienter Under the Reform Act.
   8. 1. In the conference report on SLUSA, the managers noted that while "certain Federal district courts have interpreted the Reform Act as having altered the scienter requirement . . . the managers again emphasize that the clear intent in 1995 and our continuing intent in this legislation is that neither the Reform Act nor [the SLUSA] in any way alters the scienter standard in Federal Securities fraud suits." See Conference Report on S. 1260, Securities Litigation Uniform Standards Act of 1998, 144 Cong. Rec., No. 141, H. 10266, 105th Cong., 2nd Sess., October 9, 1998 (as corrected in 144 Cong. Rec. No. 118, October 14, 1998).
      2. It is important to note that the manager's statement clearly does not reach forward-looking statements subject to the Reform Act's safe harbor provisions. In the case of such statements, the Reform Act raised the substantive scienter requirement to actual knowledge of falsity.
      3. The extent to which Congress can use a subsequent statute's legislative history as a basis for effecting a prior law is also questionable.
8. Standing to Sue Under Section 11 of the 1933 Securities Act
9. 1. In Gustafson v. Alloyd Co., 513 U.S. 561, 564 (1995), the Supreme Court held that only persons who purchased securities in a public offering by an issuer and its controlling shareholders may assert a claim under § 12(2) of the Securities Act.
   2. In claims arising under § 11 of the Securities Act, plaintiffs frequently plead that they purchased stock pursuant to or traceable to a defective registration statement.
   3. Defendants often contend that under Gustafson, plaintiffs' allegations of tractability are insufficient to create standing for a § 11 claim. A number of courts have agreed with this position. See, e.g., In re Summit Med. Sys., 10 F. Supp.2d 1068 (D. Minn. 1998); Gould v. Harris, 929 F. Supp. 353, 359 (C.D. Cal. 1996); Stack v. Lobo, 903 F. Supp. 1361, 1375076 (N.D. Cal. 1995).
   4. Other courts, however, have declined to extend Gustafson to § 11 claims. See, e.g., In re Websecure, Inc. Sec. Litig., Nos. 97-10662-GAO, 97-10828-GAO, 97-11045-GAO, and 97-11110-GAO (D. Mass. filed Sep. 24, 1999) (declining to extend Gustafson to § 11 claims); Adair v. Bristol Tech. Sys., Inc., 179 F.R.D. 126 (S.D.N.Y. 1998) (same); In re Stratosphere Corp. Sec. Litig., 1. F. Supp.2d 1096, 1119 (D. Nev. 1998); Lilley v. Charren, 936 F. Supp. 708, 715 (N.D. Cal. 1996) (same).

Notes:

N1 -- Martin Glenn is a partner in the New York office of O'Melveny & Myers LLP. He specializes in securities litigation and other complex, commercial litigation. Alfred Levitt is an associate in the New York office of O'Melveny & Myers LLP. Top

N2 -- Statistics are from the Stanford Securities Class Action Clearinghouse. Top

N3: The Reform Act arguably codified much of the judge-made common law developed under FRCP 9(b) and, thus, an analysis of that law is necessary to understand the standards embodied in the Reform Act. Return to Text