Private Securities Litigation Reform Act of 1995: Safe Harbor for the Innocent or Modern Day Port of Tortuga for the Buccaneers of Wall Street?
2011; Volume: 36; Issue: 3 Linguagem: Inglês
ISSN
0360-795X
Autores Tópico(s)Insurance and Financial Risk Management
ResumoI. INTRODUCTION For much of the 1600s the Port of Tortuga was an infamous pirate safe harbor.1 At the time, French and English colonial rule divided the Island of Tortuga, which consequently allowed pirates to use it as base port.2 The popular Walt Disney film Pirates of the Caribbean: The Curse of the Black Pearl once again brought the island notoriety.3 Like the notorious Port of Tortuga, pockets of unartfully drafted regulation exist where the buccaneers of Wall Street find refuge.4 Undoubtedly, securities play a key role in American life.5 They represent financial rights and the power to control entities that comprise a large segment of our economy.6 They also represent the financial hopes of business enterprises and millions of Americans.7 However, the term security should not be taken literally. Securities have no distinct intrinsic value; their value rests in the business prospects they represent.8 Securities' inherent uncertainty has led to instances where unscrupulous individuals deceive unsuspecting investors for profit.9 To combat this practice, Congress has enacted legislation prohibiting deliberately misleading financial information,10 and the Supreme Court has created a civil remedy for losses resulting from such deceit.11 While federal securities laws and regulations have protected investors from fraud, they also have created an environment discouraging companies from disclosing all information relevant to investment decisions.12 Although investors may benefit when management discloses its projections, the fear that liability will result if the projections prove to be false has chilled predictive disclosures.13 While this information's value is disputable, a system that results in withholding pertinent information from investors can be harmful.14 In an effort to prevent fraud while encouraging more expansive disclosure practices, Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA).15 While Congress intended the PSLRA to limit securities litigation, its vagueness has proven problematic. This Note addresses one PSLRA provision that courts have inconsistently applied: the safe harbor for forward-looking statements.16 Part II begins by explaining the safe harbor's development and its varying interpretations. It discusses the legislative and historical context in which the Act developed. Additionally, it examines the different existing legal frameworks that Congress used in creating the safe harbor. Finally, it addresses the safe harbor's functionality by explaining how and when courts may apply it. Part III examines the inconsistent interpretations of the safe harbor. First, it discusses the circumstances from which the inconsistencies arise. Next, it analyzes the traditional approach to the safe harbor's cautionary language prong. It also analyzes alternative approaches to the safe harbor. Finally, it examines supporting legislative history, statutory construction, and policy considerations. Part IV recommends an interpretation of the PSLRA's safe harbor that is consistent with policy concerns, the 1933 and 1934 Securities Acts' objectives, and the statutory framework and legislative history. Ultimately, the desired approach must encourage both market integrity as well as market efficiency. II. BACKGROUND A. Development of the Private Securities Litigation Reform Act of 1995 (PSLRA) In the aftermath of the 1929 stock market crash, Congress enacted the Securities Act of 193317 and the Securities Exchange Act of 1934.18 Congress intended these acts to protect investors from fraud by imposing various reporting requirements on publicly held companies.19 While neither act explicitly created a civil remedy for violations or fraudulent acts, the Supreme Court allowed investors a private cause of action.20 In the securities fraud litigation realm, section 10(b)21 of the 1934 Act and Rule 10b-522 are two of the most significant anti-fraud provisions. …
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