In 1995, Congress went on the war path against securities class actions. It started with the Private Securities Litigation Reform Act of 1995. The PSLRA set a tougher test for pleading scienter (intent to defraud) and required "loss causation" (plaintiff bought high and sold low due to fraud).
Congress followed up the PSLRA with the Securities Litigation Uniform Standards Act of 1998 and made all kinds of class actions the target in the Class Action Fairness Act of 2005. SLUSA precluded state law cases and claims that fell within the subject matter of the PSLRA. CAFA let defendants federalize most class actions and set requirements for class action settlements.
The Ninth Circuit today held that SLUSA didn't bar state law claims that fit within the "Delaware carve-out" in the statute. It ordered return of the case back to California state court. Madden v. Cowen & Co., No. 07-15900 (9th Cir. Feb. 11, 2009).
Congress simultaneously (1) stringently regulated lawsuits that aimed to enforce integrity in the financial markets and (2) deregulated those same financial markets. Now the markets have all but collapsed, costing taxpapers trillions of dollars.
Blawgletter hopes the culpable legislators feel at least a twinge of conscience.
