42 Salzberg v. Sciabacucchi, 2019 WL 549039 (Del. Feb. 12, 2019). 43 15 U.S.C. § 78u-4(b). 44 15 U.S.C. § 78u-4(b)(2).

A third level, mandated by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), is discussed below.Section 10(b) and Rule 10b-5Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and its implementing Rule 10b-5 prohibit and make unlawful the use of materially false statements or omissions (“Statement-based Frauds”) or fraudulent schemes or devices (“Scheme-based Frauds”) in connection with the sale or purchase of securities.17 The SEC routinely brings securities fraud actions against defendants for violations of Exchange Act Section 10(b) and Rule 10b-5.PSLRA and Pleading the False or Omitted StatementFederal courts recognize an implied private claim for securities fraud violations,18 but the PSLRA, codified at 15 U.S.C. § 78u-4, imposes the final and most demanding pleading requirements on private securities fraud actions. These demanding pleading requirements are not imposed on the SEC; its pleading obligations cease at Rule 9(b).

In this case, the Court may well have perceived Scrushy as the primary active perpetrator of the alleged fraud (notwithstanding his acquittal in a related criminal proceeding). How this issue plays out for non-settling defendants in securities actions, particularly for directors and officers with contractual indemnity and advancement rights, will likely continue to be litigated.Endnotes1 ___ F.3d ___, No. 07-10701, 2009WL 1675398 (11th Cir. June 17, 2009).2 15 U.S.C. § 78u-4(f )(7)(A).3 Id.4 15 U.S.C. § 78u-4(f )(2)(B)(ii).5 15 U.S.C. § 78u-4(f )(7)(B).

To appoint an investment adviser who lacks an actual financial interest in the relief sought would be contrary to one of the fundamental principles of the PSLRA, which is to appoint as lead plaintiff, those 'class members with large amounts at stake.' [FN4]SAMUEL H. RUDMAN is a partner at Coughlin Stoia Geller Rudman & Robbins and focuses on investigating and initiating securities and shareholder class actions.FN1. 15 U.S.C. §78u-4(a)(3)(B)(i).FN2. 15 U.S.C. §78u-4(a)(3)(B)(iii)(I). The presumption may be rebutted, however, if the presumptively-most-adequate plaintiff is subject to 'unique defenses' or 'will not fairly and adequately protect the interests of the class.'

The PSLRA, which heightened the pleading requirements for securities fraud actions brought under §10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, requires that a securities fraud complaint containing allegations based on information and belief 'state with particularity all facts on which that belief is formed.' 15 U.S.C. §78u-4(b)(1).The PSLRA also mandated a stay of discovery during the pendency of a motion to dismiss in all federal securities fraud cases.

ate heightened pleading standards: (i) Federal Rule of Civil Procedure (“Rule”) 9(b), which applies to all “alleg[ations of] fraud”; (ii) a provision in the Private Securities Litigation Reform Act (PSLRA) requiring greater particularity by securities plaintiffs in identifying alleged misstatements and why they are false; and (iii) a provision in the PSLRA requiring a strong inference for state-of-mind, i.e., scienter, allegations.The 9th Circuit’s OpinionA three-judge 9th Circuit panel unanimously affirmed the district court’s decision in an opinion by Judge Carlos T. Bea. While the 9th Circuit affirmed the district court’s judgment, it disagreed with a critical part of the district court’s analysis.The district court had applied three different heightened pleading requirements in dismissing plaintiff’s complaint. The 9th Circuit approved of the district court’s application of the first two heightened pleading standards—Rule 9(b) and the PSLRA’s particularity requirement for falsity, 15 U.S.C. § 78u-4(b)(1) (“Section 4(b)(1)”). But the 9th Circuit disapproved of the district’s court’s application of the third heightened pleading standard—the PSLRA’s heightened plausibility standard for pleading scienter. 15 U.S.C. § 78u-4(b)(2)(A) (“Section 4(b)(2)”).Section 4(b)(2) provides that “in any private action arising under [the Exchange Act] in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind,” the complaint must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Concluding that Section 14(e) was not a cause of action “in which the plaintiff may recover money damages only on proof that the defendant acted with a particular state of mind,” the 9th Circuit held that Section 4(b)(2)’s heightened standard was not implicated.In reaching this conclusion, the 9th Circuit first observed that, under its prior decision in Varjabedian v. Emulex Corp., 888 F.3d 399 (

75In re Lions Gate Entmt. Corp. Sec. Litig., 165 F. Supp. 3d 1, 21 (S.D.N.Y. 2016) (citations omitted).76Willard v. UP Fintech Holding Ltd., 527 F. Supp. 3d 609, 619 (S.D.N.Y. 2021) (quoting Lowinger v. Pzena Inv. Mgmt., Inc., 341 F. App’x 717, 720 (2d Cir. 2009)).77 15 U.S.C. § 78u-4(b)(1), (b)(2).78Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976).

SeeSingh v. Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019).Police Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., No.10-CV-03451-LHK, 2012 WL 1868874, at *13-14 (N.D. Cal. May 22, 2012), aff’d, 759 F.3d 1051 (9th Cir. 2014).See Emergent Cap. Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 197 (2d Cir. 2003); 15 U.S.C. §78u-4(b)(4).DoubleLine Cap. LP v. Odebrecht Fin., Ltd., 323 F. Supp. 3d 393, 456 (S.D.N.Y. 2018) (quoting Lentell v. Merrill Lynch & Co., 396 F.3d 161, 173 (2d Cir. 2005)).

The Private Securities Litigation Reform Act (“PSLRA”) establishes special rules in securities class actions. One such rule, found in 15 U.S.C. Sect. 78u-4(a)(3)(B)(vi) and known as the “Five-in-Three Provision,” prevents a “person” from serving as a lead plaintiff in “more than 5 securities class actions” during any three-year period. Does that rule, though, apply to institutional investors?

Indeed, the statute says that “if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1) (emphasis added). Yet this powerful tool is now almost a museum piece.