The Assault on Section 11 of the Securities Act: A Study in Judicial Activism
67 Pages Posted: 17 Apr 2011 Last revised: 20 Mar 2012
Date Written: April 13, 2011
This article focuses on the federal courts' restrictive interpretation of Section 11 of the Securities Act of 1933, the most investor-friendly express remedy that the "New Deal" Congress enacted. This judicial erosion has resulted in a cause of action that extends to fewer investors and is riddled with uncertainty at the pleading stage. The authors posit that recent federal court decisions that have added reliance as an element of Section 11 claims and rejected the use of statistical evidence to prove tracing are inconsistent with Section 11's text and legislative history. The article then explores the inconsistencies associated with pleading Section 11 claims that "sound in fraud" by asserting that these claims should be extended the longer statute of limitations available to such fraud-based claims under the Sarbanes-Oxley Act of 2002. The authors conclude that the federal courts' focus on impeding vexatious litigation has resulted in unduly restrictive judicial interpretations that have altered the very nature of Section 11.
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