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The Enforcement of the Securities Laws A. Limits of Private Litigation i. Class Actions a) The class representative must establish that (1) common questions of law or fact predominate in the claims raised by the class members and (2) the claim of the class representative is typical of those of the class generally to conclude that he is the appropriate representative b) Class Certification Stage
? What factual findings must the trial judge make to justify class certification?
? (1) The securities were traded in an efficient market.
? The most common way of conducting this inquiry is to apply the so-called Cammer factors. See Cammer v. Bloom (pg. 704)
? (1) Extent of weekly volume;
? (2) How many stock analysts follow the company;
? (3) Number of market-makers and arbitrageurs;
? (4) Status as an S-3 issuer; and
? (5) Data showing close connection between release of information and prompt changes in stock price.
? (2) Most courts also require a showing that the fraud in question actually distorted the stock price, even though this goes directly to the merits of the lawsuit.
? The plaintiff does not have to show loss causation at the class certification stage. Erica P. John Fund v. Haliburton Co. (Supp. pg. 111)
? Materiality does not have to be shown at the class certification stage. See Amgen c) Once the suit is certified as a class action, notice sent out to all potential class members of the action so they can opt out of the action and thus avoid the res judicata effects of that action on their rights. d) If the suit survives the motion to dismiss (and maybe a summary judgment), the parties will very likely settle.
? The question then is whether the suit is fair.
? "[T]he court starts from the familiar axiom that a bad settlement is almost always better than a good trial." In re Warner Comm. Sec. Lit. e) Attorneys Fees
? (1) The classic method is the salvage value method, whereby the attorney receives a percentage of the fund recovered in the suit.
? (2) There is also the lodestar method.
? The court would first review the billable hours the attorney had logged in prosecuting the case and the customary hourly rate.
This figure would then be increased by a multiple to reflect considerations such as the novelty or riskiness of the suit as well as the relative skill of the attorney.
? This has been recognized as appropriate in cases in which there is not common fund but conferred benefits on the class. See Mills v. Electric Auto-Lite Co. (pg. 749)
? The PSLRA added SS 27(a)(6) to the '33 Act and SS 21D(a)(6) to the Exchange Act requiring that attorneys' fees and expenses should not exceed a reasonable percentage of any damages and prejudgment interest actually paid.
? A further provision added by the PSLRA (SS 27(a)(7) of the '33 Act and SS 21D(a)(7) of the '34 Act) requires extensive disclosure in the notice of settlement of the attorneys' fees that will be sought as well as the litigants' views on the recoverable amount if the plaintiff prevailed.
? In Matsushita Electric Industrial Co. v. Epstein, the Court held that full faith and credit must be accorded to the state court's approval of a settlement notwithstanding that it released claims within the exclusive jurisdiction of the federal courts. f) Appointment of Lead Plaintiff
? The PSLRA added SS 27(a)(3) of the '33 Act and SS 21D(a)(3) of the '34 Act that sets forth the procedures for appointing lead plaintiff.
? The PSLRA provides a rebuttable presumption that the member of the purported class with the largest financial stake in the litigation is "most adequate plaintiff."
? The new procedures require that notice be given to all the members of the purported class action so that they can request to be lead plaintiff.
? Among the tasks for lead plaintiff is to select and retain counsel to represent the class. ii. Addressing Strike Suits a) The PSLRA limits the number of class actions for which any person can serve as lead plaintiff to five securities class actions during any three-year period, caps attorneys' fees at a reasonable percentage of the amount of any damages recovered, expands disclosure to class members that must accompany any settlement submitted to the court for approval, and mandates that the class action court provide a finding respecting each party's and attorney's compliance with Rule 11(b) of the FRCP. iii. The Securities Litigation Uniform Standards Act (SLUSA) a) SLUSA amended SS 28(f) of the Exchange Act to confer exclusive jurisdiction over most securities class actions. b) SLUSA preempts state court jurisdiction for class action suits involving "covered securities," a term defined in SS 18(b) of the Securities Act that includes NYSE and AMEX as well as Nasdaq/National Market System securities and securities issued by a registered investment company.
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