Securities Exchange Act Antifraud Liability (Chapter 5)

Question 1

§ 10(b)

Answer 1

x

Question 2

§ 21D(a)

Answer 2

Private Class Actions
§ 21D(a)(3)(A) – Early notice to the class
§ 21D(a)(3)(B)(iii)(I) – Rebuttable presumption of lead plaintiff for“person or group of persons”
§ 21D(a)(3)(B)(iii)(II) – Evidence required to rebut the presumption
§ 21D(a)(3)(B)(iv) – Limited discovery on issue of adequate plaintiff
§ 21D(a)(3)(B)(v) – Lead plaintiff selects lead counsel (subject to court approval)
§ 21D(a)(3)(B)(vi) – Restriction on professional plaintiffs
§ 21D(a)(6) – Court review for “reasonable” attorney fees

Question 3

Exchange Act Rule 10b-5

Answer 3

x

Question 4

§ 21E, Exchange Act

Answer 4

Safe harbor for forward-looking statements

Question 5

§ 21D(b)(4), Exchange Act

Answer 5

Loss causation: “In any private action arising under this chapter, the plaintiff shall have the burden of proving that the act or omission of the defendant alleged to violate this chapter caused the loss for which the plaintiff seeks to recover damages.”

Question 6

§ 21D(b)(1)

Answer 6

SCIENTER - PLEADING REQUIREMENTS: Particularity

In any private [anti-fraud] action arising under th[e 1934 Act] . . . the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading . . . .

Question 7

§ 21D(b)(2)

Answer 7

SCIENTER - PLEADING REQUIREMENTS: Scienter

In any private action arising under this chapter in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.

[This is Congress requiring that plaintiffs’ complaints plead with particularity the facts giving rise to a strong inference of scienter.]

Question 8

§ 21D(b)(3)(B)

Answer 8

SCIENTER - PLEADING REQUIREMENTS: Discovery Stay

In any private action arising under this chapter, all discovery and other proceedings shall be stayed during the pendency of any motion to dismiss, unless the court finds upon the motion of any party that particularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party.

Question 9

§ 21D(e)(1)

Answer 9

PSLRA limit on damages

Damages “shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.”