University of Idaho law professor Wendy Gerwick Couture has published an interesting working paper analyzing a data set of dismissal opinions from securities fraud class actions: Around the World of Securiteis Fraud in 80 Motions to Dismiss. The paper is a quick read, distilling her data into eight major observations.
Among her most interesting findings:
Scienter is the largest problem for plaintiffs. Most defendants have had an intuition that plaintiffs have difficulty meeting the scienter requirement of the PSLRA. Professor Couture's data supports that intuition.
Failure to plead a strong inference of scienter, as required by the Private Securities Litigation Reform Act (“PSLRA”), is by far and away the most frequently successful ground for dismissal.
The biggest emerging issue is whether one can infer an officer's scienter from her knowledge of the company's "core operations."
One important subset of the falsity-scienter inference is the controversial core operations inference, which assumes that “senior management, by virtue of their positions, were or should have been aware of facts so material to the company's core operations.” Indeed, the viability and scope of the core operations inference is one of the hottest issues in current securities fraud litigation, with 21% of the opinions in my data set analyzing it.
Courts do not follow the PSLRA's Rule 11 mandate. The PSLRA requires a court that dismisses a securities complaint to make a separate finding about whether the plaintiffs had complied with Fed. R. Civ. P. 11(b). However, as Professor Couture finds:
courts are largely ignoring this Rule 11 findings mandate. Thirty-nine of the opinions in my data set disposed of the case in its entirety, thus triggering the mandate. Courts made Rule 11 findings in only four of those cases.