Congress Passes Uniform Standards Act

By Danielle D'Angelo

Hoping to stop the evasion of the 1995 Private Securities Litigation Reform Act, Congress passed a bill on October 13 to end the filing of abusive securities class action lawsuits in state courts. President Clinton signed the bill into law on November 3.

Congress intended the 1995 law to curb frivolous securities class action lawsuits. However, many attorneys soon found a loophole by shifting the filing of their most speculative cases to state courts, and avoiding the federal law.

A coalition of the accounting profession, high-tech companies, venture capitalists, and securities firms pushed for the passage of the new bill, S. 1260, to stop circumvention of the 1995 securities litigation act.

Securities class actions were brought almost exclusively in federal court under federal law before the 1995 reform act. Since then, the number of state court claims has increased dramatically. In 1996, for example, more than 25% of all cases filed were brought in state courts.

The practical effect of S. 1260 will be that federal courts will be the only venue for most securities class-action lawsuits involving 50 parties or more. *