§77z–1 Private securities litigation

Summary

Sets rules for private securities class-action lawsuits. Anyone who wants to be a class representative must sign and file a sworn statement with the complaint saying they reviewed and authorized the suit, did not buy the security at a lawyer’s direction or just to join the suit, are willing to testify and represent the class, list all their trades in the security during the class period, say if they tried to lead a class in the last 3 years, and promise not to take money for being a representative beyond their share of any recovery unless the court allows it. That sworn statement does not waive attorney‑client privilege. Within 20 days after the complaint is filed a notice must be published in a major national business paper or wire saying the suit is pending and that class members have 60 days to ask the court to be lead plaintiff. The court must consider those requests within 90 days after the notice and pick the person or group with the largest financial stake who meets the class‑action rules, unless someone proves that person can’t fairly represent the class or has special defenses. A lead plaintiff (and certain officers of the lead plaintiff) may not lead more than 5 similar securities class actions in any 3‑year period. Discovery is paused while a motion to dismiss is pending unless the court finds specific discovery is needed to save evidence or prevent unfair harm. While discovery is stayed, parties who know of the claims must preserve all relevant documents and electronic data as if they had been formally requested. If a party willfully fails to preserve such material, the other side can ask the court for sanctions. Any settlement must be publicly described, including the total and per‑share amounts, any agreed or disputed estimate of per‑share damages, who will ask for attorneys’ fees and how much (including per share), a contact for class counsel, and why the settlement is proposed; settlement terms may be sealed only for parts that would cause direct and substantial harm if published. The representative’s share of any judgment or settlement must match other class members on a per‑share basis, though the representative may be paid reasonable costs and lost wages for representing the class. Lawyers’ fees and expenses awarded to the plaintiff class cannot exceed a reasonable percentage of the money and prejudgment interest actually paid to the class. At the end of the case the court must record whether parties and lawyers met the standards of Rule 11(b); if they did not, the court will impose sanctions, usually ordering payment of the opposing side’s fees and expenses unless the sanctioned party shows that fee awards would be unfair or the violation was trivial. If a defendant asks, the jury must be given a written question about the defendant’s state of mind when liability depends on that mental state.