Securities Litigation Reform Act’s Success Debatable 30 Years In

Thirty years’ distance from the passage of the Private Securities Litigation Reform Act shows the law has had a powerful impact on the practice area it addressed, but whether it had the desired effect remains up for discussion.

Enacted on Dec. 22, 1995, the PSLRA transformed the type of investors who typically lead securities fraud class actions, the investigations and evidence they bring to early stages of the case, and the tailwinds behind companies’ requests for dismissal.

Defense attorneys are mixed on whether the law has had the impact its proponents hoped for: using new processes to blunt the pressure for stock issuers to settle in the face of class securities fraud allegations.

“The PSLRA has accomplished what it was designed to do, and that was to give defendants and courts the ability to weed out at the pleading stage those cases that might have arguable merit and those that don’t have any merit,” said Dechert LLP’s Joni Jacobsen.

“I would describe the Act as a major success,” Joseph Grundfest, a Stanford Law School professor who was involved in the negotiations for the PSLRA, said via email. “It brought a level of discipline and order to the process that was previously lacking.”

Some take a more nuanced view. “It’s had a lot of successes, but it doesn’t mean it’s been completely successful,” said Simpson Thacher & Bartlett LLP’s Jonathan Youngwood.

The PSLRA, part of the Contract with America the Republican Party championed in the mid-1990s, was intended to curb frivolous or abusive securities class actions. Before then, small investors could sue with sparse allegations and negotiate quick settlements with companies that wanted to avoid the costly discovery process waiting just around the corner, attorneys say. The PSLRA forced those filing suit to select an “adequate” lead plaintiff, to plead key elements of security fraud to a heightened standard, and to proceed without discovery until dismissal motions were resolved, among other provisions.

Before the law, “all a plaintiff had to do was get through a motion to dismiss,” and suddenly a corporation faced the risk of a “cataclysmic result,” including defense costs and a potential trial judgment, said Jonathan Polkes of White & Case LLP.

Thirty years later, “it’s déjà vu all over again. Everything I just described in the past tense is in the present tense, everything. Abuse of discovery; outrageous, ginned-up damages,” Polkes said. “The PSLRA has lost a lot of its force.”

And an attorney for investors, Eric Belfi of Labaton Keller Sucharow LLP, said the plaintiffs’ bar is still on its feet. The PSLRA “was meant, in a lot of ways, to destroy the industry,” he said. “What it did was make the industry a lot stronger and a lot better.”

‘Battle Royale’

The law is unique in its impact on the complaint and motion-to-dismiss stages of the case, said Alston & Bird LLP’s Susan Hurd. Its pleading and other requirements all go to “setting up this battle royale at the start of the case,” she said.

On the plaintiffs’ side, the front-loading has increased initial costs and expenses, shrinking the pool of law firms that can handle the litigation, said Scott & Scott Attorneys at Law LLP’s David Scott.

Clients are now often institutional investors that “will draw lines in the sand” in negotiations, Belfi said.

The act’s pleading standards mean surviving claims have met a higher bar, increasing settlement cost pressure, said defense lawyer Jay Dubow of Troutman Pepper Locke LLP.

Before the PSLRA, certain cases could settle cheaply and quickly, he said. Now, “if they’ve survived that bar, then the plaintiffs’ lawyers are not willing to take a lower settlement.”

Surviving Cases

The PSLRA didn’t lower the number of securities fraud class actions filed. A 2007 National Economic Research Associates report with data spanning years before and after the law’s passage showed a roughly comparable number of suits filed from 1991 through 2007, with a dip in 1996. Subsequent NERA and Cornerstone Research reports show no appreciable drop.

“The plaintiffs still want to take their shot,” said Hurd. But the law has affected the dismissal rate, she and others said. However, pre-PSLRA dismissal data isn’t available.

NERA data shows that for cases filed from 2000 to 2006, the dismissal rate ranged between 53% and 68%. The group’s July 2025 report shows dismissal rates of 52% and 56% for the two most recent annual cohorts of cases with nearly complete resolution data, namely those filed in 2016 and 2017.

“When these cases survive a motion to dismiss, they become more valuable,” Scott said. “As they become more valuable, you’re finding that the defendants are litigating them harder.”

Part of that’s been borne out at the class certification stage.

Defendants used to stipulate to class certification when Labaton’s Christine Fox started practicing around the time of the PSLRA’s passage. “They would be like, ‘Okay, this is a stock that trades on an exchange. How are we going to fight class certification?”

Now, that’s a major battleground playing out in appellate courts nationwide.

Wish Lists

Some aspects of securities litigation could still use addressing, attorneys said.

Shareholder derivative complaints, with no equivalent law, show plaintiff-selection “abuses that you used to see pre-PSLRA,” Dubow said, likening these suits following proposed class actions to shark-following fish that “eat the crumbs that the sharks don’t eat.”

Scott wishes courts would allow limited discovery when repleading. A consequence of the discovery stay “is that there are investors who go without redress,” he said.

And the defense bar should be taking better advantage of the PSLRA’s latitude toward judicial decision making by leveraging a motion to dismiss to argue “that the defendants are good people who did their best to tell the truth about the condition of the company,” said Baker & Hostetler LLP’s Doug Greene.

“While the dismissal rate is good, it could be far higher.”