Two columns on securities litigation that bookended the holiday:
(1) An op-ed in the June 26 edition of the Washington Post by Professor Richard Booth (U. of Maryland Law School) posits that diversified investing is the solution to the problem of securities fraud. Professor Booth concludes that all securities class actions should be replaced by derivative actions on behalf of the company.
Quote of note: “The cost of litigation operates as a tax on the returns of diversified investors that subsidizes undiversified investors. Even if undiversified investors have a legitimate gripe, the fact is that about two-thirds of all stock is held by diversified institutional investors, and much of the remainder is held by diversified nonprofit institutions. There is no justification for protecting undiversified investors at the expense of other investors when diversification is free for the taking.”
(2) The July 5 edition of the New York Law Journal contains an article (subscrip. req’d) on two recent decisions from the S.D.N.Y. The decisions address when the Securities Litigation Uniform Standards Act of 1998 (SLUSA) does, or does not, pre-empt state class actions alleging misconduct in the securities industry.
Quote of note: “In sum, through differing outcomes, Felton and Paru appear to reinforce an emerging principle: if, at its core, the state securities class action depends on an allegation of misrepresentation or omission, SLUSA will preempt it, whatever legal theory the plaintiff may invoke; if it does not, SLUSA preemption will not lie.”