Recent Court of Appeals Decisions Permit Securities Fraud Claims to Proceed
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Morgan Lewis Title
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published on:
July 2000
When Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA or Reform Act), it sought to deter opportunistic plaintiffs from filing abusive securities strike suits in an effort to extort settlements from issuers and their insurance carriers. In keeping with this clear Congressional directive, Courts of Appeal have in the past uniformly ruled in favor of defendants when they have interpreted the heightened requirements for pleading securities fraud under the PSLRA. However, in June 2000, two Courts of Appeals issued opinions (one interpreting the PSLRA, one turning on other grounds) that allowed plaintiffs to survive a motion to dismiss.
On June 21, 2000, the Court of Appeals for the Second Circuit vacated and remanded the decision by a district court granting a motion to dismiss a securities fraud class action filed against an issuer, its directors and its largest shareholders. Novak v. Kasaks, No. 98-9641, --- F.3d ---, 2000 WL 796300 (2d Cir. June 21, 2000). Significantly, Novak is the first published post-PSLRA appellate decision to reverse a district court’s dismissal of a complaint on the basis of its interpretation of the “heightened” pleading standards of the PSLRA.
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