The Lead Plaintiff Provisions of the PSLRA After a Decade, or 'Look What's Happened to My Baby'

Abstract

In 1995, my colleague John Beckerman and I had an experience shared by very few legal academics. We wrote an article recommending dramatic changes in the manner securities class actions are organized and saw Congress enact into law a bill that included essentially all the recommendations we had made. The article was Let the Money Do the Monitoring: How Institutional Investors Can Reduce Agency Costs in Securities Class Actions, 104 Yale L.J. 2053 (1995); the law was the Private Securities Litigation Reform Act of 1995 ("PSLRA"); the relevant provisions, now generally known as "the lead plaintiff provisions," prescribe procedures for the selection of lead plaintiffs and lead counsel in securities class actions. In this Essay, I recount some aspects of the unique history of the lead plaintiff provisions and reflect on what has happened in the decade or so that they have been in effect. The Essay has six parts. Part I describes the questions that led Professor Beckerman and me to undertake research concerning the dynamics of securities class actions and summarizes our findings and recommendations. Part II sets forth our perspective on how our recommendations came to be enacted into law. Part III describes post-enactment developments that have been consistent with our expectations - most notably, the emergence of institutional investors as major players in securities class action litigation and the related increase in investors' recoveries. Part IV describes post-enactment developments that we did not anticipate, including one precipitated by the emergence of the Internet and another that involves the difficulty, which we should have anticipated, that courts have had in deciding which class member has the largest loss and therefore is the presumptive lead plaintiff. In Part V, we conclude that even had Congress followed a more deliberative process before enacting our recommendations into law, it probably would not have come up with a substantially better approach for organizing the process by which lead plaintiffs and lead counsel are appointed in securities class actions. In Part VI, we recommend that Congress clarify the language of the statute in one minor respect and that courts make changes in how they deal with two administrative issues relating to securities class action litigation.