In the 1990s, in response to an increasing wave of
securities fraud class actions based merely on a decline in the
stock price, the US Congress enacted the Private Securities
Litigation Reform Act (the PSLRA). The PSLRA amended the
federal securities laws for the express purpose of reducing the
number of questionable actions by toughening the requirements
for securities fraud claims. Initially, those restrictions
curtailed the amount of securities fraud litigation in the US.
After the eruption caused by corporate accounting frauds such
as Enron and WorldCom in the early years of this decade,
however, the number of securities fraud class actions
increased. At the same time, several federal courts began
showing increased tolerance for those actions, in spite of the
restrictions imposed by the PSLRA. As a result, the legislative
changes effected by the PSLRA have had a more modest impact
than Congress intended.
During this time, securities fraud...