Gift to Plaintiff’s Bar

businessgiftSecurities fraud litigation attorneys no doubt welcomed a recent ruling by the Second Circuit Court of Appeals (covering New York and other northeastern states).

This decision enables plaintiffs to sue a public company for securities fraud if the company fails to disclose in its SEC filings trends and uncertainties that it could reasonably expect to have a material impact on revenues.

Public companies already disclose a long litany of potential risks, trends and uncertainties.  The disclosure is so voluminous that it practically diminishes its influence.  It’s overkill.

Under this recent ruling, securities fraud litigation attorneys can use “20/20 hindsight” to claim that a company should have disclosed trends and uncertainties that resulted in problems for the company.

Giving the plaintiffs grounds to sue starts the litigation process which often results in a settlement before trial.  Plaintiff’s counsel typically gets a large portion of the settlement payment.  This gives the plaintiff’s bar the incentive to be aggressive in pursuing cases.

The Second Circuit’s ruling conflicts with rulings in other Circuits.  Until this conflict is resolved by the US Supreme Court, the plaintiff’s bar will likely make the most of the opportunity.

For additional background on the ruling, please click here to read an article by Benesch, the law firm, on JDSupra, the online legal resource.