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Securities Litigation Uniform Standards
Act of 1998
Overview
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 Securities
Litigation Uniform Standards Act of 1998
- Pub. L. 105-353,
Nov. 3, 1998, 112 Stat. 3227
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GPO PDF
- Legislative history
Purpose
of statute
- "in order to
prevent certain State private securities class action
lawsuits alleging fraud from being used to frustrate
the objectives of the Private Securities Litigation
Reform Act of 1995, it is appropriate to enact national
standards for securities class action lawsuits involving
nationally traded securities, while preserving the
appropriate enforcement powers of State securities
regulators and not changing the current treatment
of individual lawsuits"
- From Section 2 -
Findings
- When the PSLRA was
adopted in 1995, securities class actions were typically
brought under federal law in federal court. After
the PSLRA was adopted, trial lawyers brought an
increasing number of securities class actions in
state court. Congress enacted SLUSA to address this
development
Key
provisions - Limitation on remedies
- SLUSA made substantially similar amendments
to
Securities Act 16 and Exchange Act 28
Key
cases
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Statute At-a-Glance
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Full
text of statute
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GPO PDF
Pub L 105-353, Nov 3, 1998, 112 Stat 3227
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Preliminary Provisions
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 1
Short title
- Securities Litigation Uniform Standards
Act of 1998
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2
Legislative findings
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Title I - Securities Litigation
Uniform Standards
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101
Limitation on remedies
- 101(a) - Amended Securities Act 16 in its
entirety
- See Securities Act
16 below
- 101(b) - Added Exchange Act 28(f)
- See Exchange Act
28(f) below
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102
Reciprocal subpoena enforcement
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Title II - Reauthorization of
the SEC
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201
Authorization of appropriations
- Amended Exchange Act 35 in its entirety
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202
EDGAR
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203
professional economists
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Title III - Clerical and Technical
Amendments
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301
Clerical and Technical Amendments
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Securities Act 16
General
- ___ Official source
- Additional Remedies; Limitation on Remedies
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16(a)
Remedies additional
- Except as provided in subsection
(b), the rights and remedies provided by
this title shall be in addition to any and
all other rights and remedies that may exist
at law or in equity
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16(b)
Class action limitations
- No covered class action based upon
the statutory or common law of any State or
subdivision thereof may be maintained in any
State or Federal court by any private party
alleging--
1. an untrue statement or omission of a material
fact in connection with the purchase or sale
of a covered security; or
2. that the defendant used or employed any manipulative
or deceptive device or contrivance in connection
with the purchase or sale of a covered security
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16(c)
Removal of covered class actions
- Any covered class action brought in
any State court involving a covered security,
as set forth in subsection (b), shall be removable
to the Federal district court for the district
in which the action is pending, and shall be
subject to subsection (b)
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| Subsection d
- Preservation of certain actions |
16(d)(1)
Actions under law of State of incorporation
- A. Actions preserved
Notwithstanding subsection (b) or (c), a
covered class action described in
subparagraph (B) of this paragraph that is
based upon the statutory or common law of
the State in which the issuer is
incorporated (in the case of a corporation)
or organized (in the case of any other
entity) may be maintained in a State or
Federal court by a private party
- B. Permissible actions
A covered class action is described in this
subparagraph if it involves--
i. the purchase or sale of securities by the
issuer or an affiliate of the issuer exclusively
from or to holders of equity securities of the
issuer; or
ii. any recommendation, position, or other communication
with respect to the sale of securities of the
issuer that--
I. is made by or on behalf of the issuer or
an affiliate of the issuer to holders of equity
securities of the issuer; and
II. concerns decisions of those equity holders
with respect to voting their securities, acting
in response to a tender or exchange offer, or
exercising dissenters' or appraisal rights
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16(d)(2)
State actions
- A. In general
Notwithstanding any other provision of this
section, nothing in this section may be
construed to preclude a State or political
subdivision thereof or a State pension plan
from bringing an action involving a covered
security on its own behalf, or as a member
of a class comprised solely of other States,
political subdivisions, or State pension
plans that are named plaintiffs, and that
have authorized participation, in such
action
- B. State pension plan defined
For purposes of this paragraph, the term "State
pension plan" means a pension plan established
and maintained for its employees by the government
of the State or political subdivision thereof,
or by any agency or instrumentality thereof
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16(d)(3)
Contractual agreements - indenture
trustees
- Actions under contractual agreements
between issuers and indenture trustees
Notwithstanding subsection (b) or (c), a covered
class action that seeks to enforce a contractual
agreement between an issuer and an indenture
trustee may be maintained in a State or Federal
court by a party to the agreement or a successor
to such party
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16(d)(4)
Remand of removed actions
- In an action that has been removed
from a State court pursuant to subsection (c),
if the Federal court determines that the action
may be maintained in State court pursuant to
this subsection, the Federal court shall remand
such action to such State court
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16(e)
Preservation of State jurisdiction
- The securities commission (or any
agency or office performing like functions)
of any State shall retain jurisdiction under
the laws of such State to investigate and bring
enforcement actions
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| Subsection f
- Definitions |
Section
16(f) Preamble
- For purposes of this section, the
following definitions shall apply:
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16(f)(1)
Affiliate of the issuer
- The term "affiliate of the issuer"
means a person that directly or indirectly,
through one or more intermediaries, controls
or is controlled by or is under common control
with, the issuer
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| Subsection (f)(2)
- Covered class action |
16(f)(2)(A)
Covered class action - In general
- A. In general
The term "covered class action" means--
i. any single lawsuit in which--
I. damages are sought on behalf of more than
50 persons or prospective class members, and
questions of law or fact common to those persons
or members of the prospective class, without
reference to issues of individualized reliance
on an alleged misstatement or omission, predominate
over any questions affecting only individual
persons or members; or
II. one or more named parties seek to recover
damages on a representative basis on behalf
of themselves and other unnamed parties similarly
situated, and questions of law or fact common
to those persons or members of the prospective
class predominate over any questions affecting
only individual persons or members; or
ii. any group of lawsuits filed in or pending
in the same court and involving common questions
of law or fact, in which--
I. damages are sought on behalf of more than
50 persons; and
II. the lawsuits are joined, consolidated, or
otherwise proceed as a single action for any
purpose
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16(f)(2)(B)
Exception for derivative actions
- B. Exception for derivative actions
Notwithstanding subparagraph (A), the term "covered
class action" does not include an exclusively
derivative action brought by one or more shareholders
on behalf of a corporation
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16(f)(2)(C)
Counting of certain class members
- C. Counting of certain class members
For purposes of this paragraph, a corporation,
investment company, pension plan, partnership,
or other entity, shall be treated as one person
or prospective class member, but only if the
entity is not established for the purpose of
participating in the action
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16(f)(2)(D)
Rule of construction SEC_CODE_REF_0090001192884
- D. Rule of construction
Nothing in this paragraph shall be construed
to affect the discretion of a State court in
determining whether actions filed in such court
should be joined, consolidated, or otherwise
allowed to proceed as a single action
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16(f)(3)
Covered security
- The term "covered security" means
a security that satisfies the standards for
a covered security specified in paragraph (1)
or (2) of section 18(b) at the time during which
it is alleged that the misrepresentation, omission,
or manipulative or deceptive conduct occurred,
except that such term shall not include any
debt security that is exempt from registration
under this title pursuant to rules issued by
the Commission under section 4(2)
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Legislative
history
- May 27, 1933, ch 38, Title I, 16, 48 Stat
84;
- Nov 3, 1998, PL 105-353, Title I, 101(a)(1),
112 Stat 3227
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Exchange Act 28(f)
General
- ___ Official source
- Limitation on Remedies
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28(f)(1)
Class action limitations
- No covered class action based upon
the statutory or common law of any State or
subdivision thereof may be maintained in any
State or Federal court by any private party
alleging--
A. an untrue statement or omission of a material
fact in connection with the purchase or sale
of a covered security; or
B. that the defendant used or employed any manipulative
or deceptive device or contrivance in connection
with the purchase or sale of a covered security
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28(f)(2)
Removal of covered class actions
- Any covered class action brought in
any State court involving a covered security,
as set forth in paragraph (1), shall be removable
to the Federal district court for the district
in which the action is pending, and shall be
subject to paragraph (1)
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| Subsection (f)(3)
- Preservation of certain actions |
28(f)(3)(A)
Actions under law of State of incorporation
- A. Actions preserved
Notwithstanding paragraph (1) or (2), a
covered class action described in clause
(ii) of this subparagraph that is based upon
the statutory or common law of the State in
which the issuer is incorporated (in the
case of a corporation) or organized (in the
case of any other entity) may be maintained
in a State or Federal court by a private
party
- B. Permissible actions
A covered class action is described in this
clause if it involves--
I. the purchase or sale of securities by the
issuer or an affiliate of the issuer exclusively
from or to holders of equity securities of the
issuer; or
II. any recommendation, position, or other communication
with respect to the sale of securities of an
issuer that--
(aa) is made by or on behalf of the issuer or
an affiliate of the issuer to holders of equity
securities of the issuer; and
(bb) concerns decisions of such equity holders
with respect to voting their securities, acting
in response to a tender or exchange offer, or
exercising dissenters' or appraisal rights
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28(f)(3)(B)
State actions
- i. In general
Notwithstanding any other provision of this
subsection, nothing in this subsection may
be construed to preclude a State or
political subdivision thereof or a State
pension plan from bringing an action
involving a covered security on its own
behalf, or as a member of a class comprised
solely of other States, political
subdivisions, or State pension plans that
are named plaintiffs, and that have
authorized participation, in such action
- ii. State pension plan defined
For purposes of this subparagraph, the term
"State pension plan" means a pension plan
established and maintained for its employees
by the government of a State or political
subdivision thereof, or by any agency or
instrumentality thereof
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28(f)(3)(C)
Contractual agreements - indenture
trustees
- Actions under contractual agreements
between issuers and indenture trustees
Notwithstanding paragraph (1) or (2), a covered
class action that seeks to enforce a contractual
agreement between an issuer and an indenture
trustee may be maintained in a State or Federal
court by a party to the agreement or a successor
to such party
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28(f)(3)(D)
Remand of removed actions
- In an action that has been removed
from a State court pursuant to paragraph (2),
if the Federal court determines that the action
may be maintained in State court pursuant to
this subsection, the Federal court shall remand
such action to such State court
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28(f)(4)
Preservation of State jurisdiction
- The securities commission (or any
agency or office performing like functions)
of any State shall retain jurisdiction under
the laws of such State to investigate and bring
enforcement actions
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| Subsection f(5)
- Definitions |
Paragraph
5 Preamble
- For purposes of this subsection, the
following definitions shall apply:
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28(f)(5)(A)
Affiliate of the issuer
- The term "affiliate of the issuer"
means a person that directly or indirectly,
through one or more intermediaries, controls
or is controlled by or is under common control
with, the issuer
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28(f)(5)(B)
Covered class action
- The term "covered class action" means--
i. any single lawsuit in which--
I. damages are sought on behalf of more than
50 persons or prospective class members, and
questions of law or fact common to those persons
or members of the prospective class, without
reference to issues of individualized reliance
on an alleged misstatement or omission, predominate
over any questions affecting only individual
persons or members; or
II. one or more named parties seek to recover
damages on a representative basis on behalf
of themselves and other unnamed parties similarly
situated, and questions of law or fact common
to those persons or members of the prospective
class predominate over any questions affecting
only individual persons or members; or
ii. any group of lawsuits filed in or pending
in the same court and involving common questions
of law or fact, in which--
I. damages are sought on behalf of more than
50 persons; and
II. the lawsuits are joined, consolidated, or
otherwise proceed as a single action for any
purpose.
- B. Exception for derivative actions
Notwithstanding subparagraph (A), the term "covered
class action" does not include an exclusively
derivative action brought by one or more shareholders
on behalf of a corporation
- C. Counting of certain class members
For purposes of this paragraph, a corporation,
investment company, pension plan, partnership,
or other entity, shall be treated as one person
or prospective class member, but only if the
entity is not established for the purpose of
participating in the action
- D. Rule of construction
Nothing in this paragraph shall be construed
to affect the discretion of a State court in
determining whether actions filed in such court
should be joined, consolidated, or otherwise
allowed to proceed as a single action
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28(f)(5)(C)
Exception for derivative actions
- Notwithstanding subparagraph (B),
the term "covered class action" does not include
an exclusively derivative action brought by
one or more shareholders on behalf of a corporation
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28(f)(5)(D)
Counting of certain class members
- For purposes of this paragraph, a
corporation, investment company, pension plan,
partnership, or other entity, shall be treated
as one person or prospective class member, but
only if the entity is not established for the
purpose of participating in the action
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28(f)(5)(E)
Covered security
- The term "covered security" means
a security that satisfies the standards for
a covered security specified in paragraph (1)
or (2) of section 18(b) at the time during which
it is alleged that the misrepresentation, omission,
or manipulative or deceptive conduct occurred,
except that such term shall not include any
debt security that is exempt from registration
under this title pursuant to rules issued by
the Commission under section 4(2)
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28(f)(5)(F)
Rule of construction
- Nothing in this paragraph shall be
construed to affect the discretion of a State
court in determining whether actions filed in
such court should be joined, consolidated, or
otherwise allowed to proceed as a single action..
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Legislative
history
- May 27, 1933, ch 38, Title I, 16, 48 Stat
84;
- Nov 3, 1998, PL 105-353, Title I, 101(a)(1),
112 Stat 3227
- June 6, 1934, c 404, Title I, 28, 48
Stat 903; June 4, 1975, Pub L 94 29, 21,
89 Stat 160; Oct 13, 1982, Pub L 97-303,
4, 96 Stat 1409; Dec 4, 1987, Pub L 100-181,
Title III, 327 to 329, 101 Stat 1259; Oct
11, 1996, Pub L 104-290, Title I, 103(b),
110 Stat 3422; Nov 3, 1998, Pub L 105-353,
Title I, 101(b)(1), 112 Stat 3230; Dec 21,
2000, Pub L 106-554, 1(a)(5), 114 Stat
2763
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Commentary
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firms
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