In 1995, Congress passed the Private Securities Litigation Reform Act, or PSLRA. The law was designed to stem the tide of allegedly frivolous securities lawsuits. Such lawsuits are filed under Rule 10(b) of the Securities Exchange Act of 1934, and generally allege that the plaintiff’s investment holdings were devalued, via a decrease in stock price, by the misstatements or omissions of the defendant corporation. The PSLRA raises the pleading requirements for these lawsuits.
With over 20 years of electronic recordkeeping in the courts, analysis of trends in the way court cases are filed relative to changes in law, economics, and history is now possible. According to Docket Alarm data, lawsuits filed under PACER Nature of Suit code 850 remained relatively steady throughout the 2000s, before increasing heavily starting in 2017, and peaking in 2021.
Not all cases filed in PACER under code 850 are Rule 10(b) lawsuits. Data from before PSLRA’s enactment is unavailable, as PACER had not been fully adopted at that time.
From data alone, it’s difficult to tell if there was any trigger to the increase in securities litigation that began in 2017. Insurance company Woodruff Sawyer posited that the changes could be due to trends in filing patterns. Allegations in securities complaints became less focused on accounting over time, perhaps in response to tighter regulations issues after Enron and other corporate accounting scandals.
Economics could also play a factor. The spike in filings in 2021 came in the midst of the economic impact of COVID-19; but also during a period of frequent initial public offerings and the rise of the SPAC.
The top parties involved in securities lawsuits – other than the SEC – are financial institutions like Citigroup, JP Morgan Chase, and Morgan Stanley.
The top law firms in securities litigation include Robbins Geller Rudman & Dowd, Pomerantz LLP, and The Rosen Law Firm. Each of these law firms represents both plaintiffs and defendants relatively equally.
