Introduction
The Private Securities Litigation Reform Act became law on December 22, 1995 when the Senate overrode President Clinton’s December 19, 1995 veto of the measure (Pub. Law 104-67, 109 Stat. 737). The House of representatives overrode the President’s veto on December 20, 1995 by a vote of 319 to 100. The vote in the Senate was 68 to 30. The Act was passed to combat perceived abuses in the securities litigation process. The legislation alters control of investor cases brought as class actions, encourages voluntary disclosures, provides sanctions in certain circumstances if claims are unsupported, limits liability proportionate to responsibility, and contains audit requirements designed to provide added protections against fraud. The reform movement grew out of a congressional belief that frivolous strike suits alleging securities law violations were increasing the cost of raising capital and chilling corporate disclosures to investors. The Private Securities Litigation Reform Act reflects a congressional desire to reassert legislative control over securities fraud litigation. Congress has sought to restore the securities litigation system’s ability to promote “public and global” confidence in the nation’s capital markets, deter wrongdoing, and guarantee that corporate directors, officers, auditors, lawyers and others properly perform their jobs.

Class Action Procedures
The Act implements procedural protections designed to discourage frivolous securities litigation. It establishes the concept of the "most adequate plaintiff" as lead plaintiff in a securities class action, creating the rebuttable presumption that the plaintiff with the largest financial interest in the relief being sought by the class is the most adequate The “most adequate plaintiff” will, with court approval, select and retain counsel to represent the class. A plaintiff seeking to serve as a class representative must certify that he or she has reviewed the complaint and authorized its filing. The legislation additionally calls for better disclosure of settlement terms to class members.

Projections
To encourage corporate executives to offer investors more meaningful information, the Reform Act creates a safe harbor for forward-looking statements, such as earnings projections. With a nod to the judicially crafted “bespeaks caution" doctrine, Congress has acted to protect forward-looking statements from liability as long as they are accompanied by "meaningful cautionary statements" identifying important factors that could cause actual results to differ materially from those in the projection. The safe harbor embraces both oral and written projections.

Attorneys’ Fees
Other provisions of the Act are designed to give victims of abusive securities lawsuits the opportunity to recover their attorneys’ fees at the conclusion of an action. This fee shafting is accomplished through the vehicle of Rule 11 of the Federal Rules of Civil Procedure, which governs all pleadings, written motions, and other papers filed with the court. The Act creates a rebuttable presumption that the appropriate sanction for the substantial failure of a complaint to comply with Rule 11 is an award to the opposing party of the reasonable attorney’s fees and other expenses incurred in the action. The Act gives courts discretion to require security for payment of costs in class actions.

Proportionate Liability
A "fair share" system of proportionate liability in private securities litigation has been adopted to largely replace joint and several liability. Congressional conferees believed existing practices under the joint and several liability system created coercive pressure for innocent parties to settle meritless claims rather than risk exposing themselves to liability for a disproportionate share of the damages in a given case.

Auditor Disclosure
Under another provision of the Act providing for auditor disclosure of corporate fraud, accountants are affirmatively required to search for, attempt to detect fraud, and report it to management. If management does not correct it, the matter would have to be passed on to government regulators.

Aiding and Abetting
It is also important to note what the Reform Act did not do. While giving the SEC the explicit authority to bring actions against those who aid and abet violations of the securities laws, the Act does not extend an express right of action to private investors for aiding and abetting. This inaction with regard to private investors leaves intact the U.S. Supreme Court ruling that there is no implied private right of action for aiding and abetting under the antifraud provisions contained in Exchange Act Rule 10b-5. Central Bank of Denver v. First Interstate Bank (US Sup. Ct. 1994), 1993-1994 CCH Dec. 98,178.

Statute of Limitations
Further, although urged to do so by regulators and commentators, Congress declined to extend the one-year/three-year statute of limitations for securities fraud adopted by the U.S. Supreme Court in Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson (US Sup.- Ct. 1991), 1991 CCH Dec. 96,034. For over forty years, federal courts had held that the statute of limitations for private rights of action under Rule10b-5 was the statute of limitations determined by applicable state law. In the 1991 Lampf case, the Court announced a uniform federal limitations period for Rule l0b-5 under which an action must be commenced within one year after discovery of the facts constituting the violation and within three years after the violation. The Act leaves this uniform limitations period undisturbed.

Recklessness
According to Congressman Bliley, the legislation does not change standards of liability under the securities laws. Unlike the bill passed by the House, the Act does not codify recklessness as a standard of liability under the securities laws, said Mr. Bliley, that question is left to the courts. (Cong. Record, Dec. 6, 1995, p. 14040).

Other Provisions
The Act also contains the following provisions:

· Discovery rules are changed to minimize costs incurred during the pendency of a motion to dismiss or a motion for summary judgment;

· An undertaking for attorney fees and costs may be required of attorneys or parties in class actions;

· The standard for pleading securities fraud is codified;

· In an action for money damages, a written interrogatory may be submitted to the jury on the issue of state of mind at the time of the violation;

· Damages are limited to losses caused by fraud and not by other market conditions;

· Securities fraud is removed as a predicate offense in a civil action under RICO;

· Purchasers of securities suing under Securities Act civil liability provisions must prove that the alleged misstatements or omissions actually caused their loss; and

· The SEC must study and report on protections for senior citizens and qualified retirement plans.

Effective Duties
The main provisions of the Act apply to any private action commenced after December 22, 1995. The provisions pertaining to auditor disclosure of corporate fraud apply to annual reports for periods starting in 1996 for registrants that file quarterly reports and to annual reports for periods starting in 1997 for all other registrants.

Disclaimer
This is a broad overview of the PSLRA. It is not intended to be a definitive statement of all of the provisions of the legislation. As such, it should not be construed as “legal advice.”