Issue 6, Summer 2011

Securities Litigation Insights is a periodic report concerning recent developments, issues, and matters of interest in securities litigation and regulation. To access your copy of the most current issue, follow this link.

Articles in this issue:

  • Control Person Liability: What Investment Firms Should Know
     In evaluating the range of legal risks inherent in acquiring interests in portfolio companies, investment firms should be aware of the possibility that the firm or its personnel who serve on the portfolio company's board may be exposed to liability as a "control person" for the portfolio company's violations of the securities laws. However, taking some practical steps can reduce and mitigate the risk of their "control person" exposure in light of recent decisions.
  • Could the Supreme Court's Enforcement of Arbitration in Concepcion Reverberate in the Securities Litigation Sphere?
    A recent U.S. Supreme Court decision may cause corporations to reconsider a possible way to avoid costly and often counter-productive securities class actions. In AT&T Mobility LLC v. Concepcion, the Court on April 27 upheld the enforceability of contractual arbitration clauses that waive a consumer's right to bring a class action. This decision has been hyped as both a "dramatic example of judicial activism" and the "class action shot heard 'round the world" because it gives businesses a way to significantly reduce — if not eliminate entirely — consumer class actions. While the effect of this landmark decision on consumer class actions is evident, its importance is less clear for shareholder class actions. Can corporations also prevent future securities class actions by adding arbitration and class-action waiver clauses in the company's charter or bylaws?
  • Recent Supreme Court Securities Decisions Maintain Status Quo
    The U.S. Supreme Court recently issued five important decisions affecting securities litigation, each of which maintains the existing balance between plaintiffs and defendants. In Jones v. Harris Associates L.P., the Court confirmed a long-standing standard for determining whether an investment adviser has charged excessive fees to a mutual fund. In Merck Co. v. Reynolds, the Court found that the two-year statute of limitations under §10(b) does not begin to run on a cause of action until a plaintiff knows or should know facts constituting all elements of the violation, including scienter. Next, in Erica P. John Fund, Inc. v. Halliburton Co., the Court agreed with the majority of the circuit courts that plaintiffs in securities fraud cases need not show loss causation at the class certification stage. In Matrixx Initiatives, Inc. v. Siracusano, the Court reaffirmed its view that "materiality" is a fact-specific inquiry that must take into account the "total mix" of facts. Finally, in Janus Capital Group Inc. v. First Derivative Traders, the Court maintained its bar on private actions for aiding and abetting liability by refusing to impose securities fraud liability on persons who draft or assist in the preparation of — but do not "make" — the allegedly misleading statements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.