It is a truth universally acknowledged that a public company D&O insurance practice requires knowledge of the federal securities laws. And so like many others in our field, I have had to back-and- fill a working knowledge of the securities laws. Due to the way I acquired this knowledge, there are some bare spots – in particular, I sometimes am hamstrung because I lack the perspective that would allow me to see how it all fits together. So every now and then, I need to step back and reengage with the basics. All too often I find myself relying on the indifferent result of a Google search for this gap-filling. I have never really found a good, manageable source to use for caulking those securities law gaps. Until now, that is.
I have recently had the occasion to review “Securities Litigation: Law, Policy, and Practice” (here), a securities litigation case book written by Marc Steinberg of SMU Law School; Wendy Gerwick Couture of the University of Idaho Law School; Michael J. Kaufman of the Loyola University (Chicago) Law School; and Daniel Morrissey of Gonzaga University law school. This comprehensive book provides a thorough overview of the federal securities laws and federal securities litigation, with a special emphasis on securities litigation practices and procedures and on civil and criminal federal securities law enforcement. For anyone looking at a broad but thorough introduction to the securities litigation in the U.S., this volume is an ideal solution.
The book is written to be used for a law school securities litigation class. Many of the chapters end with sections that are styled as “Notes” but that in fact function as a list of questions about material presented. Many of the chapters also end with a section headed “Scenario,” in which the authors propose a fact-pattern to test the principles that the chapter presents. These “Notes” and “Scenario” sections pose interesting questions and thought-problems, and while they undoubtedly lend themselves to interesting classroom discussion, they will be of less help for a practitioner looking for more of a treatise-type presentation of the material.
The volume begins, as you might expect, with an overview of the federal securities laws, particularly with the features of the laws that underpin securities litigation and enforcement in the current environment. The early sections include a review of the players in securities litigation and a section reviewing recent examples of different kinds of securities litigation.
After a more detailed overview of the legal bases of federal securities litigation, the volume then examines the alternative sources of relief available to investors under the federal securities laws, such as for example, Section 17(a) of the Securities Act of 1933, which prohibits fraud in the sale of securities by that “likely does not give rise to a private right of action”; as well as the specialized remedial provisions in Section 14(a) of the Exchange Act, relating to tender offer fraud, and Section 16 of the Exchange Act, pertaining to short swing trading.
The authors then turn to the state securities (“Blue Sky”) litigation, as well as issues involving attorney and accountant liability; and litigation involving broker-dealers and investment advisors.
The book includes a separate chapter on derivative suits, including a detailed review of the various procedural restrictions on derivative litigation, including for example the demand requirement. The authors also review some of the more current topics in securities litigation, including forum selection clauses.
The authors also include a chapter dealing with deal litigation, including in particular appraisal rights actions; merger objection litigation, including in particular actions involving directors and officers breaches of their fiduciary duties; and proxy and tender offer litigation. In keeping with the book’s overview approach, the chapter does not directly deal with many current deal litigation topics, such as the Delaware courts’ recently expressed distaste for disclosure only settlements, and the consequent shift of deal litigation to federal court. And while the book does, as noted above, discuss forum selection bylaws, it does not discuss the recent debate involving fee-shifting by laws.
I was pleased to see that the authors included a final chapter on investor litigation outside of the United States. As I have recently noted on this blog, the rise of collective investor actions outside the U.S. may be one of the most important current developments in the securities litigation arena. The book’s chapter on international securities litigation includes a brief description of developments in a number of countries, including the U.K., Australia, The Netherlands and China. The chapter also includes a separate section detailing the rise of private securities litigation in Canada, particularly as relates to changes in the securities laws in Ontario.
A chapter that may be of particular value to those who are relatively unacquainted with U.S. securities litigation is the one devoted to securities class action practice and procedure. The chapter provides a good overview of the requirements of the PSLRA, the provisions and implications of SLUSA, and the features of class action procedures that are of most particular relevance to securities litigation. Within the procedural chapter is an introduction to several topics that are current right now, including the rather arcane topic of American Pipe tolling, and the contemporary question of whether the American Pipe doctrine applies to statutes of repose. The practice and procedure chapter also includes a section about opt-out plaintiffs and opt-out litigation, as well as discussion of the looming unanswered questions about the impact of mandatory arbitration clauses and class action litigation.
Although the volume is meant to serve as a law school text book, the authors have taken a very practical and realistic approach to the subject. The authors spend less time discussing the theory of the securities laws and rather focus of their discussion on the specifics of how the cases get litigated. I found it particularly useful and interesting to review the chapters involving areas where I have relatively little experience (broker-dealer litigation, for example), and I found the discussion helpful and instructive.
Whenever anyone tries to address a large topic like securities litigation in a single volume, there are going to be some omissions. This volume is no exception. I am going to show my biases in naming at least one of this book’s omissions, and that is the omission of a discussion of the role of D&O insurance in securities litigation. I have been involved one way or the other in numerous securities class action lawsuits over the years, and all I can say is that in my mind it is impossible to talk about how these cases get resolved without talking about the role of D&O insurance.
Simply put, D&O insurance pays most of the costs of defending class action securities litigation in the U.S. and typically contributes most and frequently all of the funds required to settle securities lawsuits. For that reason, I can’t see trying to discuss securities litigation – and particularly securities litigation settlements – without discussing D&O insurance. Moreover, as Tom Baker and Sean Griffith discuss in their intriguing book “Ensuring Corporate Misconduct” (about which refer here) the presence of D&O insurance has potentially important implications about the compensation and deterrence purposes of securities litigation.
All of that said, this comprehensive volume covers a wide volume of material succinctly and clearly, in a way that will provide readers and student alike a useful overview of the relevant legal principles governing securities litigation, and provide a practical perspective on the processes and procedures that govern securities litigation practice. This book would be a welcome tool for anyone teaching a course on securities litigation and a useful source for anyone wanting to learn about securities litigation.