Publications

Financial Crisis: Range of Defendants May Be Limited - Courts Have Curtailed Investors' Ability to Sue Beyond the Issuers

The National Law Journal
04.20.09

The financial crisis has shaken virtually everyone’s confidence in the security of our financial system. Although it is tempting to concentrate on institutional or regulatory failures, there are millions of honest investors whose financial security has been compromised or sacrificed by persons in whom they placed the highest trust – persons responsible for managing resources essential for education, housing, retirement and, in some instances, survival itself.

Since the crisis began, commentators have prophesied an avalanche of lawsuits against a wide array of potentially responsible parties. See, e.g., Jonathan D. Glater, “Financial Crisis Provides Fertile Ground for Boom in Lawsuits,” N.Y. Times, Oct. 18, 2008, at B1. Certainly, the brazenness of the schemes alleged against Bernie Madoff, Allen Stanford and others are astounding, and the network of people entwined in them is surely dense and complex. With a palette of financial institutions, custodians, advisers, investment managers, facilitators, lawyers and accountants to choose from as defendants, it seems that recompense is assured – or is it?

Unfortunately for investors, the range of potentially responsible parties may be narrower than they think. Congress and the judiciary have severely curtailed the ability of investors to bring securities suits generally and to extend liability outside the context of the issuing company. In 1995, Congress passed the Private Securities Litigation Reform Act, which required investors to have preliminary evidence of fraud before filing suit. Under this statute, suspicion of fraud does not justify a lawsuit; instead, investors must show that the defendants knew of the fraud or were recklessly indifferent to its existence. Recently, the U.S. Supreme Court tightened the statute’s requirements even further. In Tellabs Inc. v. Makor Issues & Rights Ltd., 127 S. Ct. 2499 (2007), the court ruled that plaintiffs would have to show a “cogent inference” of an intent to deceive or defraud, thereby raising the pleading requirements for securities litigation beyond a “merely plausible or reasonable” inference.

Read more.

The publications contained in this site do not constitute legal advice. Legal advice can only be given with knowledge of the client's specific facts. By putting these publications on our website we do not intend to create a lawyer-client relationship with the user. Materials may not reflect the most current legal developments, verdicts or settlements. This information should in no way be taken as an indication of future results.

Search Tips:

You may use the wildcard symbol (*) as a root expander.  A search for "anti*" will find not only "anti", but also "anti-trust", "antique", etc.

Entering two terms together in a search field will behave as though an "OR" is being used.  For example, entering "Antique Motorcars" as a Client Name search will find results with either word in the Client Name.

Operators

AND and OR may be used in a search.  Note: they must be capitalized, e.g., "Project AND Finance." 

The + and - sign operators may be used.  The + sign indicates that the term immediately following is required, while the - sign indicates to omit results that contain that term. E.g., "+real -estate" says results must have "real" but not "estate".

To perform an exact phrase search, surround your search phrase with quotation marks.  For example, "Project Finance".

Searches are not case sensitive.

back to top