On the day after reports of William Lerach’s impending guilty plea, he prevailed for his clients in an appeal from an order dismissing a securities fraud complaint. The Second Circuit today upheld the district court’s conclusion that the New York Stock Exchange enjoyed absolute immunity for missteps as a quasi-governmental regulator of securities traders. But the court ruled, contrary to the district court, that the investor plaintiffs had standing to sue the NYSE for stock fraud arising from the exchange’s representations about the integrity of the trading system. In re NYSE Specialists Securities Litig., No. 06-1038 (2d Cir. Sept. 18, 2007).
The victory may prove illusory — or at least brief. The court pointed out "that Lead Plaintiffs’ Rule 10b-5 claims do not appear to be of the nature where the fraud-on-the-market theory would apply, where the misrepresentation itself affects the market price of the security purchased." Slip op. at 24. The panel also mentioned that the NYSE may enjoy immunity for misrepresentations as a "self-regulating organization" or SRO. Id.