Private Securities Litigation Reform Act and Sarbanes-Oxley Act

Federal and state securities laws contain many complex requirements that can be difficult for even experienced business people to understand. Contact a securities lawyer at our firm to discuss your securities issue.

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Private Securities Litigation Reform Act of 1995

The Private Securities Litigation Reform Act of 1995 contains provisions that significantly affect businesses. Enacted when Congress overrode President Bill Clinton's veto, the PSLRA established new rules for securities class actions and brought about several important changes affecting cases brought under the securities laws. An experienced securities attorney at Jacko Law Group in San Diego, CA can provide your business with more guidance regarding the PSLRA and SOX.

Private Litigation Reform Act of 1995

According to a U.S. House conference report, the PSLRA was designed to prevent the "routine filing of lawsuits against issuers of securities and others whenever there is a significant change in an issuer's stock price, without regard to any underlying culpability of the issuer, and with only faint hope that the discovery process might lead eventually to some plausible cause of action…" Here are some of the key provisions of the PSLRA that affect private actions against companies for securities violations:

  • Heightened Pleading Standards: A plaintiff must specify each statement alleged to have been misleading and the reasons why it is misleading. If an allegation regarding the statement is made on information and belief, the complaint must state with particularity the facts on which that belief is based. If a plaintiff fails to comply with these pleading requirements, the complaint will be dismissed.
  • Mandatory Stay of Discovery and Document Preservation: The discovery stay provision is designed to protect defendants from the high cost and burden of discovery in a case that might be dismissed and to prevent plaintiffs from filing a case without doing sufficient research and then relying on discovery to gather factual information to avoid dismissal. Basically, the provision requires that all discovery cease until a decision on a pending motion to dismiss is issued, except if there are needs to preserve evidence or prevent undue prejudice.
  • Safe Harbor: Issuers can make oral and written forward-looking statements so long as they include "cautionary statements" that identify factors that could cause actual results to substantially differ from the results described in or are immaterial to the statements. Forward-looking statements include projections of revenue, plans and objectives of management and statements about future economic performance.
  • Damages: The PSLRA has a "bounce back" period for damages, which calculates damages by taking the value of the security on the date the plaintiff bought or sold it and the mean market value of the security during the 90-day period after any information correcting an allegedly false statement or omission was disclosed.


The above information highlights some of the key provisions of the PSLRA. There are many other provisions that may affect your business, especially if you are in the midst of defending against a securities lawsuit. A securities lawyer at Jacko Law Group in San Diego, CA can guide you through the complex requirements and benefits of the PSLRA.

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