Securities Litigation and its Lawyers: Changes During the First Decade After PSLRA

Abstract

Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA or the Act) to address problems plaguing securities class action litigation. This Article surveys the empirical evidence on the impact of the PSLRA, examining the specific categories of reforms introduced by the Act. We look at the existing evidence relating to: substantive changes in the definition of fraud necessary to bring a securities class action; the Congressional efforts to empower lead plaintiffs relative to the plaintiffs' attorney bar; and the direct sanctioning of lawyers authorized in the Act. Given the PSLRA's focus on changing the incentives and behavior of plaintiff lawyers, we also provide preliminary data on the role of the lead plaintiff law firm. We report that while the market concentration of plaintiff law firms based on settlement amounts did not change appreciably after the enactment of the PSLRA, the tendency of top tier law firms to associate with lower tier firms did increase significantly in the post-PSLRA period. We also report that institutional investors taking on the role of lead plaintiffs in the post-PSLRA period tended to develop repeat relationships with select top tier law firms. Our survey of the existing evidence and study of new evidence relating to the role of plaintiff law firms leads us to raise several questions for possible new lines of research into the effectiveness of the PSLRA.