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.”
iii. Similarly, prior to the Securities Act’s passage, Senator Peter Norbeck (RSD) 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.”
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.
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%....
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