The Private Securities Litigation Reform Act of 1995: A Discussion of Three Provisions

Posted: 27 Sep 1996

See all articles by Rachel Schwartz

Rachel Schwartz

affiliation not provided to SSRN

Ronald R. King

Washington University in St. Louis - John M. Olin Business School

Date Written: May 1996

Abstract

The passage of the Private Securities Litigation Reform Act of 1995 (Reform Act) is intended to restore predictability to the litigation process under federal securities law, and therefore to reduce litigation risk for accountants and publicly traded firms. The purpose of this commentary is to explore potential implications of three provisions of the Reform Act. The first provision that we examine is the "fair share" proportionate liability rule that the Reform Act requires for allocating damages among parties who are potential wrongdoers. We summarize conditions that trigger joint and several liability and present an example highlighting some of the allocation issues under the new proportionate rule. The second provision is the deployment of damage caps. We illustrate how caps may limit damages that liable parties must pay to the plaintiffs based on the average market price over the 90 days following the correcting disclosures. The third provision relates to the requirement for fraud detection and disclosure by independent public accountants. We conclude with a discussion of some issues that may influence how the actual implementation of the Reform Act might change accountants' liability.

JEL Classification: G38, K22

Suggested Citation

Schwartz, Rachel and King, Ronald R., The Private Securities Litigation Reform Act of 1995: A Discussion of Three Provisions (May 1996). Available at SSRN: https://ssrn.com/abstract=10189

Rachel Schwartz

affiliation not provided to SSRN

Ronald R. King (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

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