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Private Securities Litigation Reform Act of 1995 (PSLRA)
Practical Law Glossary Item w-000-3647 (Approx. 3 pages)
Glossary
Private Securities Litigation Reform Act of 1995 (PSLRA)
A federal law enacted in response to the perceived profusion of frivolous class actions alleging securities fraud under the Securities Act of 1933 and the Securities Exchange Act of 1934. Key PSLRA provisions governing securities class actions include:
- Stringent pleading requirements for fraud claims, including that the:
- plaintiff must identify each specific statement alleged to be false or misleading and explain why it is misleading. (15 U.S.C. § 78u-4(b)(1));
- plaintiff must state particular facts giving rise to a strong inference that the defendant issued the allegedly misleading statement knowing that it was false at the time it was made. (15 U.S.C. § 78u-4(b)(2)); and
- plaintiff must allege that the information in the false or misleading statement, or omission of information, was the cause of the actual loss the plaintiff suffered. Plaintiff must also prove loss causation.
- Limitations on recoverable damages and attorneys' fees.
- Sanctions for frivolous litigation.
- Stays of discovery pending resolution of motions to dismiss.
- Specifications as to the most adequate lead plaintiff in class actions.
- Numerous restrictions affecting the conduct of class actions.
- A safe harbor provision for forward-looking statements (15 U.S.C. § 78u-5(c)(1)(A)(i)), which are protected if:
- meaningful cautionary language accompanies the statements;
- the statements are immaterial; and
- the plaintiff fails to prove that the statements were made with actual knowledge that they were false or misleading.