Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
BOST ON | LONDO N | LOS AN GELES | NE W YORK | SAN DIE GO | SAN FRAN CISCO | ST AMFORD | W ASHING TON
PETE R SAPA ROF F JOEL ROT HMA N
PSAP ARO FF@M INT Z.CO M JDROTH MAN @MIN TZ.C OM
(617) 542-6000 (617) 542-6000
The Evisceration of the Federal Securities Law
by, Peter M. Saparoff & Joel D. Rothman
Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.
© 2013 Peter Saparoff
All rights reserved
1
Current through 12/19/2013
I. Introduction
a. Legislative history of the Securities Act of 19331(“Securities Act”) and the
Securities Exchange Act of 19342(“Exchange Act” and collectively, the “Acts”).
i. Congress passed the Acts following the 1929 stock market crash that
triggered the Great Depression.
ii. Prior to the passage of the Securities Act, President Roosevelt stated:
“This proposal adds to the ancient rule of caveat emptor the further
doctrine, ‘let the seller also beware.’ It puts the burden of telling the
whole truth on the seller.”3
iii. Similarly, prior to the Securities Act’s passage, Senator Peter Norbeck (R-
SD) urged for the passage of legislation that would “definitively fix
responsibility for deception and frauds upon directors and other officials
and with severe penalties for such acts.”4
b. The Acts were intended to be clear statutes with clear violations.
c. Both Congress and the courts have weakened the acts, which is reflected in the
number of cases filed.
i. According to a SEC report issued in April of 1997 that looked at the
number of federal securities class actions filed in 1996, the first full year
after the Private Securities Litigation Reform Act of 19955(“PSLRA”)
became effective, there was a 34% drop-off from the number of
companies sued in federal court class actions when compared to 1995, a
52% drop-off from the number of suits when compared to 1994, and a
31% drop-off from the number of suits compared to 1993.6
ii. According to data published by National Economic Research Associates,
between 2009 and 2011, plaintiffs filed an average of 144 cases per year
that alleged violations of the Acts. Between 2005 and 2008, the average
was 173 cases per year, a decline of almost 17%.7
115 U.S.C. §§ 77a et seq.
215 U.S.C. §§ 78a et seq.
377 Cong. Rec. 937 (Mar. 29, 1933), reprinted in 1 Federal Securities Laws Legislative H istory 1933-1982, at 20
(1983) .
477 Cong. Rec. 3223-33 (May 11, 1933), reprinted in1 Federal Securities Laws Legislative History 1933-1982, at
247.
5Pub. L. No. 104-67, 109 Stat. 737 (1995).
6U.S. Securities and Exchange Commission, REPORT TO THE PRESIDENT AND THE CONGRESS ON THE
FIRST YEAR OF PRACTICE UNDER THE PRIVATE SECURITIES LITI GATION REFORM ACT OF 1995
(April 1997), available at http://securities.stanford.edu/research/reports/19970401lreform.html.
7National Economic Research Associates, Dr. Renzo Comolli et al., Recent Trend s in Securities Class Action
Litigation: 2012 Full-Year Review, at 6 (Jan. 29, 2 013), available at http://www.nera.com/nera-
files/PUB_Year_End_Trends_01.2013.pdf.
