Every year, the Stanford Law School Securities Class Action Clearinghouse, in conjunction with Cornerstone Research, releases its annual overview of securities class action lawsuit flings. As I noted in a post last week, this year's version introduced a number of innovations and reflected a host in interesting observations. (The full 2010 Stanford/Cornerstone report can be found here.)
Because the securities class action litigation environment clearly is going through a significant transition, I thought it would be worthwhile to check in with the Stanford Law Professor Joseph Grundfest, who oversees the Stanford website. Professor Grundfest was gracious enough to agree to participate in an interview for this site. The interview, in the form of a Q&A, is reproduced below. My questions appear in italics, followed by Professor Grundfest's responses.
Q. What do you think were the most important securities class action litigation trends during 2010?
A: The dramatic increase in merger related federal class securities fraud litigation. These cases were traditionally filed only in state court, but the decline in traditional securities fraud litigation appears to have generated a demand in the securities fraud plaintiff bar to find new cases to fill the litigation pipeline. Also, plaintiffs may discover that it is easier to control this litigation if they can bring cognizable federal claims, even if those claims are quite weak.
Q. What do you think were the most important judicial trends concerning securities litigation in 2010?
A: The implications of the Supreme Court's Morrison decision continues to reverberate in the lower courts, and many observers are surprised by the vigor with which the lower courts are dismissing actions related to foreign market activity. Morrison is not being interpreted narrowly.
Q. What impact do you think that the Dodd Frank Act will have on securities litigation? Do you think the Dodd Frank whistleblower provisions will lead to significantly increased SEC enforcement activity? Are there other provisions of the Act that you think are particularly important from a litigation or enforcement activity standpoint?
A: Dodd-Frank's bounty provisions are the joker in the deck here. If the presence of the bounty causes a material increase in SEC enforcement actions, it is reasonable to expect an increase in parallel private actions. After all, that's the way the market works now: if the SEC files a claim that plaintiffs haven't yet pursued, it's only a short matter of time before a very similar private complaint is on file in federal court. There's no reason that the market won't work that way in response to SEC actions instituted in response to whistleblower information.
Read the article in its entirety at the D&O Diary, a blog by Kevin LaCroix.