"Simplicity and certainty" in the measure of recovery under Rule 10b-5

Business Lawyer

Volumn 51, Issue 4, 1996, Pages 1177-1201

  Thompson, Robert B ^a  

^a WASHINGTON UNIVERSITY   (United States)

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EID: 21444457098     PISSN: 00076899     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Conference Paper

References (170)

1. Section 101 (b) of the Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67
2. Stat. 737 (1995)
3. Adding § 21D (e) to the Securities Exchange Act of 1934, 15 U. S. C. A. § 78 u-4 (West Supp. 1996) reads, in part, as follows: (e) Limitation on Damages (1) In general Except as provided in paragraph (2), in any private action arising under this chapter in which the plaintiff seeks to establish damages by reference to the market price of a security, the award of damages to the plaintiff shall not exceed the difference between the purchase or sale price paid or received, as appropriate, by the plaintiff for the subject security and the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission that is the basis for the action is disseminated to the market.
4. H. R. CONF. REP. No. 369, 104th Cong., 1st Sess. 42 (1995)
5. Reprinted in 1996 U. S. C. C. A. N. 730, 741 [hereinafter Conference Report]. The Conference Report contains three paragraphs on the Measure of Recovery: Limitation on "windfall" damages The current method of calculating damages in 1934 Act securities fraud cases is complex and uncertain. As a result, there are often substantial variations in the damages calculated by the defendants and the plaintiffs. Typically, in an action involving a fraudulent misstatement or omission, the investor's damages are presumed to be the difference between the price the investor paid for the security and the price of the security on the day the corrective information gets disseminated to the market. Between the time a misrepresentation is made and the time the market receives corrected information, however, the price of the security may rise or fall for reasons unrelated to the alleged fraud. According to an analysis provided to the Senate Securities Subcommittee, on average, damages in securities litigation comprise approximately 27.7% of market loss. Calculating damages based on the date corrective information is disclosed may end up substantially overestimating plaintiff's damages. The Conference Committee intends to rectify the uncertainty in calculating damages in new section 21 D (e) of the 1934 Act by providing a "look back" period, thereby limiting damages to those losses caused by the fraud and not by other market conditions. This provision requires that plaintiff's damages be calculated based on the "mean trading price" of the security. This calculation takes into account the value of the security on the date plaintiff originally bought or sold the security and the value of the security during the 90-day period after dissemination of any information correcting the misleading statement or omission. If the plaintiff sells those securities or repurchases the subject securities during the 90-day period, damages will be calculated based on the price of that transaction and the value of the security immediately after the dissemination of corrective information.
6. Id.
7. Id. The statute provides that measure of recovery cannot exceed the difference between the initial transaction price and "the mean trading price of that security during the 90-day period beginning on the date on which the information correcting the misstatement or omission... is disseminated to the market." 15 U. S. C. A. § 78 u-4 (e) (l) (West Supp. 1996). The measure requires determination of when corrective information has been disseminated, a controversial and likely complex procedure, and also whether recovery is being measured by relation to the market price, discussed in more detail below.
8. See infra text accompanying notes 86-90. Under subsection e (2), if the plaintiff sells (or repurchases) prior to the expiration of the 90-day period, the cap period is shortened to that earlier date.
9. U. S. C. A. § 78 u-4 (e) (2) (West Supp. 1996). Subsection (e) (3) also defines mean trading price to be "an average of the daily trading price of that security, determined as of the close of the market each day during the 90-day period."
10. Id. § 78 u-4 (e) (3).
11. Conference Report, supra note 2, at 42
12. Reprinted in 1996 U. S. C. C. A. N. at 741.
13. Id.
14. An alternative reading, likely to be favored by those preferring a "plain meaning" interpretation of statutes, would jettison the broad legislative history and focus instead on the very limited reach of the statute as written. It does nothing more than make sure that the common law measure of recovery does not include damages attributable to a crash or overcorrection after disclosure of a fraud. By that reading, the statute would produce the same result as its stated purpose, but it does become more difficult to state a purpose that fits within any broader theory of damages. The method chosen to neutralize the effects of a crash-the change in market price during the succeeding 90 days-includes within it factors that will change the price for reasons having nothing to do with the crash. These confounding changes may well override the effects of the crash. Framing the corrective measure as a cap means the subsequent change in the market must be used if it helps the defendant but is not required to be used if it hurts the defendant.
15. See infra notes 86-90 and accompanying text.
16. Kardon v. National Gypsum Co., 69 F. Supp. 512 (E. D. Pa. 1946), was the first case to find an implied private right of action under Rule 10b-5.
17. This Article does not seek to provide a comprehensive discussion of damages. For that purpose, see generally Frank H. Easterbrook & Daniel R. Fischel, Optimal Damages in Securities Cases, 52 U. Chi. L. Rev. 611 (1985);
18. Andrew L. Merritt, A Consistent Model of Loss Causation in Securities Fraud Litigation: Suiting the Remedy to the Wrong, 66 Tex. L. Rev. 469 (1988);
19. Robert B. Thompson, The Measure of Recovery Under Rule 10b-5: A Restitution Alternative to Tort Damages, 37 Vand. L. Rev. 349 (1984).
20. 15 U. S. C. §§ 77a-77aa (1994 & West Supp. 1996).
21. Id. §§ 78a-78ll.
22. See infra text accompanying notes 16-21.
23. Rescission makes the defendant pay for the change due to the market when the overall market has declined since the original fraud. See infra notes 22-30 and accompanying text. Unjust enrichment and consequential damages are other examples, as is the modified or expedient out of pocket measure, discussed below.
24. See infra notes 21, 31-34 and accompanying text.
25. 15 U. S. C. A. § 78u-4 (e) (2) (West Supp. 1996).
26. See infra text accompanying notes 16-21.
27. See infra text accompanying notes 22-34.
28. Estate Counseling Serv., Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 303 F.2d 527, 533 (10th Cir. 1962).
29. Randall v. Loftsgaarden, 478 U. S. 647, 661-62 (1986);
30. Affiliated Ute Citizens v. United States, 406 U. S. 128, 155 (1972). The two measures ought to translate the same, adjusting for the reverse order in which the elements are mentioned. The fair value of what the plaintiff received is the same in both situations. What the plaintiff would have received if there had been no fraud is likely measured by the price the plaintiff paid, which is assumed to be the value the plaintiff would have received if the misrepresentation were true. The phrasing used by the Supreme Court has an element of expectancy or benefit of the bargain in its reference to what the plaintiff would have received. In many cases out of pocket damages are the same as expectancy, but to the extent that they are different, expectancy damages are seldom permitted under Rule 10b-5.
31. See Thompson supra note 8, at 354 (rejecting expectation measure under Rule 10b-5 is based on a mixture of statutory interpretation, policy considerations and history).
32. Lev and de Villiers use a more precise mathematical formula focusing on two transaction points and comparing the difference between price and actual value at each time. The result would still seek to separate any change between Time 1 and Time 2 that could be attributed to fraud from any change due to other causes such as fluctuation in markets. See Baruch Lev & Meiring de Villiers, Slock Price Crashes and 10b-5 Damages: A Legal, Economic, and Policy Analysis, 47 Stan. L. Rev. 7, 23 (1994).
33. CONFERENCE REPORT, supra note 2, at 42
34. Reprinted in 1996 U. S. C. C. A. N. at 741 ("Typically, in an action involving a fraudulent misstatement or omission, the investor's damages are presumed to be the difference between the price paid for the security and the price of the security on the day the corrective information gets disseminated to the market.")
35. See infra text accompanying notes 21-34.
36. WILLIMS K. S. WANG & MARK I. STEINBERG, Insider Trading §4.8.2.2 (1996) (distinguishing expedient out of pocket using market price after correction, from true out of pocket, using value at the time of plaintiffs trade).
37. See Doyle v. Union Bank & Trust Co., 59 P.2d 1171 (Mont. 1936);
38. Poole v. Camden, 92 S. E. 454 (W. Va. 1916);
39. Beare v. Wright, 103 N. W. 632, 634 (N. D. 1905) ("he could have escaped all the consequences of a bad speculation [not only those due to the fraud] by withdrawing from it by rescission. ").
40. See generally 1 George E. Palmer, The Law Of RES-TITUTION § 3.8, at 266 ("[o]ne of the most striking differences between restitution and the damage action").
41. Green v. Occidental Petroleum Corp., 541 F.2d 1335, 1343 (9th Cir. 1976) (Sneed, J. concurring).
42. Id.
43. This offset is only to the extent that the gain in the market equals or exceeds the loss due to fraud. If the offset was only partial, defendant would still be liable under rescission for some amount of damges due to the fraud.
44. See Estate Counseling Serv., Inc., v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 303 F.2d 527, 532 (10th Cir. 1962) (stating it would be advantageous for a plaintiff to claim rescission if loss was imminent or to disclaim rescission if profit was apparent;
45. Prompt election required). LOUIS LOSS, Fundamentals of Securities Regulation 1133 (3d ed. 1983);
46. Palmer, supra note 22, § 3.8.
47. Compare Rule 10b-5, 17 C. F. R. § 240. 10b-5 (1995)
48. With U. C. C. § 2-714 (2) (1995).
49. See supra text accompanying notes 22-27.
50. See, e.g., Janigan v. Taylor, 344 F.2d 781, 786 (1st Cir.)
51. Cert. denied, 382 U. S. 879 (1965).
52. See id.; Rude v. Cambell Square, Inc., 411 F. Supp. 1040, 1050 (D. S. D. 1976).
53. Janigan gives the example of an artist who produced a valuable portrait with paint procured by fraud, in which case the plaintiff could not recover the value of the painting. Janigan, 344 F.2d at 787.
54. But see Rochez Bros., Inc. v. Rhoades, 491 F.2d 402 (3d Cir. 1974) (refusing to allow any reduction in the amount plaintiff recovered from the defendant's resale of stock acquired by fraud even though the increased resale value neither existed nor could have existed if plaintiff had remained as the owner of the shares).
55. See, e.g., Garnatz v. Stifel, Nicholas & Co., 559 F.2d 1357, 1361 (8th Cir. 1977)
56. Cert. denied, 435 U. S. 951 (1978) (allowing losses from a general decline in the market if the plaintiffs can demonstrate that their decision to enter the market was the natural, proximate and foreseeable consequences of the defendant's fraud).
57. While the plaintiff can choose between rescission or unjust enrichment and out-ofpocket, it is possible to add consequential damages to an out-of-pocket recovery.
58. Section 20A of the 1934 Act, 15 U. S. C. § 78t-l (1994), added in 1988, provides a private cause of action to contemporaneous traders of those using inside information and specifies that the total amount of damages cannot exceed the profit gained or loss avoided in the transaction.
59. Rule 10b-5 specifies that there must be a misrepresentation or omission of a material fact. 17 C. F. R. § 240. 10b-5 (1995). After courts implied a private right of action under this rule they looked to common law and the express claims under federal securities law to determine defendant's applicable mental state (scienter) required for a violation, the connection between the defendant's wrongful conduct and the plaintiff (reliance and causation), and the measure of recovery.
60. See supra text accompanying notes 16-33.
61. For example, in determining the statute of limitation for an action under Rule 10b-5, federal courts for many years borrowed from the most appropriate state law remedy, leading to different limitations periods in different states for the federal action. In 1991, the Supreme Court ruled there should be a uniform limitations period and chose the 1 year/3 year period from the express remedies in the federal securities laws. See Lampf, Pleva, Lipkind, Purpis & Petigrow v. Gilbertson, 501 U. S. 350 (1991);
62. See also Central Bank of Denver, N. A. v. First Interstate Bank of Denver, N. A., 511 U. S. 164 (1994) (holding that there is no aiding and abetting liability under Rule 10 b-5);
63. Musick, Peeler & Garrett v. Employers Ins. of Wausau, 508 U. S. 286, 297 (1993) (finding an implied right to contribution under Rule 10b-5 by reference to contribution under the express provisions of the 1934 Act). In Central Bank of Denver, the Court explained: When the text of § 10 (b) does not resolve a particular issue we attempt to infer "how the 1934 Congress would have addressed the issue had the 10b-5 action been included as an express provision in the 1934 Act, "... For that inquiry we use the express causes of actions in the securities Acts as the primary model for the § 10 (b) action.
64. Id. at 1448 (citation omitted).
65. 15 U. S. C. A. § 77l (a) (West Supp. 1996).
66. The plaintiff may recover "the consideration paid for such security with interest thereon, less the amount of any income received thereon, upon the tender of such security." Id. If the plaintiff has sold the security and therefore cannot tender it, the section provides for "damages" as an alternative, which likely would be the financial equivalent of rescission, that is a measure that would, like rescission, put the risk of the market on the defendant. Id.
67. 15 U. S. C. § 77c (1994).
68. See 17 C. F. R. § 230.501-. 508 (1995);
69. Id. § 230. 147.
70. The broad prohibition in § 5, 15 U. S. C. § 77c (1994)
71. Prohibiting any sale of security without compliance with the act, and the broad definition of offer, sale and prospectus in §§ 2 (3) and 2 (10), 15 U. S. C. §§ 77b (3), 77b (10) (1994), cast a very wide net for any selling activity prior to the filing date of a securities registration and only regulated selling prior to the effective date. Rule 135 and other similar rules provide some exceptions for specific selling efforts.
72. See 17 C. F. R. § 230. 135 (1995).
73. Any sales effort that did not come within these exemptions would lead to a violation of § 5, 15 U. S. C. § 77c (1994)
74. § 12 (a) (1), 15 U. S. C. A. § 77/(a) (l) (1994 & West Supp. 1996).
75. 15 U. S. C. § 77k (1994 & West Supp. 1996).
76. Id. § 77k (e). Case law further restricts the defendant's risk by holding that in a class action setting the date of suit is the date the first plaintiff files suit, not the day that other plaintiffs may learn of the suit or the day they filed suit themselves.
77. See Beecher v. Able, 435 F. Supp. 397, 409-10, (S. D. N. Y. 1977).
78. See, e.g., Mitchell v. Texas Gulf Sulphur Co., 446 F.2d 90 (10th Cir.)
79. Cert. denied, 404 U. S. 1005 (1971).
80. Courts interpret the securities laws as intended to protect innocent investors, not those who seek to speculate at the defendant's expense. See Myzel v. Fields, 386 F.2d 718, 740 n. 15 (8th Cir. 1967)
81. Cert. denied, 390 U. S. 951 (1968);
82. Royal Air Properties, Inc. v. Smith, 312 F.2d 210, 213-14 (9th Cir. 1962);
83. See also Hoxworth v. Blinder Robinson & Co., 903 F.2d 186, 203 n. 25 (3d Cir. 1990) ("this circuit has expressed clear disapproval of a damage theory that would insure defrauded buyers against downside market risk unrelated to fraud" (citation omitted)).
84. The statute of limitations will act as an outside date for the length that the risk is transferred. Under § 13 this period is one year from the date of the discovery of the untrue statement or omission (or should have been made by the exercise of reasonable diligence), but in no event more than three years after the security was first bona fide offered to the public. 15 U. S. C. § 77m (1994).
85. Id. § 77k (e) (1994 & West Supp. 1996).
86. See RICHARD W. JENNING & HAROLD MARSH, JR., Securities Regulation, Cases and Materials 810 (2d ed. 1968) : This would appear to be virtually an impossible burden for the defendant to carry. If the market generally declines... it is reasonable to suppose that some part of the decline in the price of this particular security was due to the general market conditions. But how can one prove exactly what part? Perhaps if there were a market decline before discovery of the false statement, such discovery might be sufficiently shown to be due to other causes; but even this appears doubtful.
87. After Feit v. Leasco Data Processing Equip. Corp., 332 F. Supp. 544 (E. D. N. Y. 1971), the authors qualified their "virtually impossible" commentary to the time prior to Feit.
88. See RICHARD W. JENNING & HAROLD MARSH, JR., Securities Regulation, Cases and Material 1027 (3d ed. 1972);
89. RICHARD W. JENNING, ET AL., Securities Regulation, Cases and Materials 1338 (7th ed. 1992).
90. In Feit Judge Weinstein was willing to assume that at least the portion of the decline equal to the Standard and Poor's index of 500 stocks was due to other causes. Feit, 332 F. Supp. at 587. Jennings and Marsh criticize the Feit opinion for not using a more accurate index such as one that applies only to conglomerates, or the Dow Jones Industrial Average. They note that "this would undoubtedly have wiped out the damages altogether and may have seemed like too much of a good thing."
91. JENNINGS & MARSH 3d ed., supra, at 1027, suggesting an expedient use of theory to provide what the judge believed to be the appropriate result.
92. In Beecher v. Able, 435 F. Supp. 397 (S. D. N. Y. 1977), the court was unwilling to describe the defendant's burden as impossible but nevertheless concluded that the weight of evidence clearly established that the decline in price was due to the falsity of the prospectus. The Beecher case is symptomatic of confusion in the measure of recovery area. After holding that the defendant had failed to carry the burden of proving negative causation (which means the defendant would carry the risk of the change from market conditions as well as change due to the fraud) the actual computation of damages awarded the plaintiff only the amount corresponding to the projected market loss between the day of corrective disclosure and the filing of suit 18 days later. The court got to this unusual result because of its conclusion that the market price on the day of suit was characterized by panic selling following the corrective disclosure. To correct for this panic reaction the court took the market fall between the initial issuance and the corrective disclosure and projected that decline to continue until the day of suit. Like the result in Feit, the result corresponds to the judge's sense of the appropriate result more than any consistent theoretical approach.
93. See Akerman v. Oryx Communications, Inc., 810 F.2d 336, 340-42 (2d Cir. 1987) (stating that a price decline before disclosure may not be charged to the defendant without making any reference to the defendant's burden of proof).
94. The plaintiff could bring a consequential damages claim asserting that but for the fraud he or she would have been in the market anyway, and so would have received the benefit of the market upswing.
95. Reliance is only required in the unusual circumstance where the defendant has circulated an earnings statement that covers twelve months after the registration statement. The issuer is strictly liable for a violation, other defendants have a due diligence defense. See 15 U. S. C. § 77k (a) (1994).
96. Id. § 77l (1994 & West Supp. 1996).
97. Id.
98. See supra text accompanying notes 44-50.
99. See infra text accompanying notes 74-80.
100. See Herman & MacLean v. Huddleston, 459 U. S. 375, 383 (1983)
101. (that there may be some overlap with express remedies is "neither unusual nor unfortunate" (quoting SEC v. National Sec., Inc., 393 U. S. 453, 468 (1969))).
102. See generally RICHARD W. JENNINGS ET AL., Securities Regulation, Cases and Materials 1340 (7m ed. 1992).
103. 15 U. S. C. A. § 77l (b) (West Supp. 1996).
104. 115 S. Ct. 1061 (1995).
105. 15 U. S. C. § 78r (1994).
106. See, e.g., Heit v. Weitzen, 402 F.2d 909, 916 (2d Cir. 1968)
107. Cert. denied, 395 U. S. 903 (1969).
108. See JAMES D. COX ET AL., Securities Regulation Cases and Materials 712 (1991).
109. To the extent that § 18 claims are brought, the new cap will limit recovery under that section as well. Likewise, recovery under other implied rights of action under the 1934 Act, such as the proxy provision, Rule 14a-9, 17 C. F. R. § 240. 14a-9 (1995), will be limited by the cap in the new legislation.
110. 15 U. S. C. § 78cc (1994).
111. See Regional Properties, Inc. v. Financial & Real Estate Consulting Co., 678 F.2d 552 (5th Cir. 1982).
112. 17 C. F. R. § 240. 10b-5 (1995).
113. See case cited supra note 57.
114. See 15 U. S. C. § 77e (1994).
115. See id. § 78r.
116. See id. § 78n (a).
117. See id. §§ 78m (d), 78n (d) - (e).
118. See id. § 78n (h).
119. See id. § 78m.
120. See id. § 78p.
121. See supra text accompanying notes 16-21.
122. See, e.g., Green v. Occidental Petroleum, 541 F.2d 1335, 1341 (9th Cir. 1976) (Sneed, J., concurring).
123. See, e.g., Harris v. American Inv. Co. 523 F.2d 220, 226 (8th Cir.), cert. denied, 423 U. S. 1054 (1976);
124. Richardson v. MacArthur 451 F.2d 35, 43-44 (10th Cir. 1971);
125. Esplin v. Hirsch 402 F.2d 94, 104-05 (10th Cir. 1968), cert, denied, 394 U. S. 128 (1969).
126. See supra text accompanying notes 18-21.
127. Conference Report, supra note 2, at 42, reprinted in 1996 U. S. C. C. A. N. at 741. Most courts do not go into the detail of establishing a price line and value line, opting instead for a more expedient approach of using a later price. Most of these statements can best be described as dicta, made at a point in the case in which a court is deciding some question other than actual damages, such as the appropriateness of a class action.
128. See supra text accompanying notes 22-33.
129. But see WANG & Steinberg, supra note 21, § 3. 3.1 (discussing how "block trading," a large proportion of the trades on the New York Stock Exchange, has aspects of face to face trading).
130. 15 U. S. C. § 77k (1994 & West Supp. 1996).
131. 17 C. F. R. § 240. 10b-5 (1995).
132. See, e.g., FRANK H. Easterbrook & DANIEL R. Fischel, The Economic Structure of Corporate Law 334 (1991) (stating that profit is a pretty good starting point in the theory of optimal sanctions; damages computed on the basis of loss to the investor can greatly exceed the optimal sanction as in management's announcement to the open market).
133. Conference Report at 42
134. Supra note 2
135. Reprinted in 1996 U. S. C. C. A. N. at 741.
136. 15 U. S. C. A. § 78u-4 (e) (West Supp. 1996).
137. The Conference Report cites Lev and de Villiers' study on stock price crashes, which asserts that price on the day of the corrective account overcompensates a plaintiff because of the overreaction to the crash.
138. CONFERENCE REPORT, supra note 2, at 42
139. Reprinted in 1996 U. S. C. C. A. N. at 741.
140. See Lev & de Villiers, supra note 18.
141. Apart from a panic overreaction to corrective news, the drop in price might also reflect a litigation effect on the price, pushing the price down because the market now knows there is a greater chance of the firm's prospects being affected adversely by having to respond to litigation resulting from the fraud. See Janet Cooper Alexander, The Value of Bad News in Securities Class Actions, 41 UCLA L. Rev. 1421, 1435 (1994). The effect of the bounce back period on this element of the drop seems more uncertain.
142. See supra text accompanying note 28.
143. See infra text accompanying notes 90-104.
144. 435 F. Supp. 397 (S. D. N. Y. 1977).
145. See supra note 49 for more information about the case and the measure of damages.
146. If as shown in Figure 1, the market returns to S50 and remains steady, the mean average price for the 90 days will be below S50 to the extent that the price takes some period of time to recover to S50. I have used S50 in the text as the mean price to keep the numbers easier to follow. To the extent that this average is below S50, the cap does not fully exclude recovery due to the crash and its correction.
147. The text assumes a S30 average; the actual average price shown on Figure 2 will be more than that depending on the speed and degree of decline in price.
148. Because the new statute is written as a cap and not the measure of recovery, the plaintiffs would not recover for the market change if the court otherwise used a measure of recovery that excluded the changes due to the marked, (i.e., a pure out of pocket measure). This requires the court to understand that the new statute is a cap and not the measure of recovery, a point that seems straight forward enough, but eluded the writers of the Conference Report and to understand that the cap needs to be applied when the correction is followed by an up market but not when it is followed by a down market. Based on my reading of 10b-5 recovery cases, I would expect more than one court to fail to understand the distinction.
149. Again for simplicity I have assumed an average of S110, when the average would be somewhat lower, depending on the time needed for the market to reach that point.
150. Section 11, 15 U. S. C. § 77k (1994 & West Supp. 1996)
151. Has a similar effect that the plaintiff could avoid by seeking out of pocket relief under Rule 10b-5, 17 C. F. R. § 240. 10 b-5 (1995).
152. The change that will preclude recovery under Rule 10b-5 in Example 3 will also affect a plaintiff bringing action under § 11. In this scenario, the plaintiff" will no longer be able to use Rule 10b-5 to prevent the defendant from escaping payment for fraud in a rising market. 97. Conference Report, supra note 2, at 42
153. Reprinted in 1996 U. S. C. C. A. N. at 741.
154. 435 F. 397 (S. D. N. Y. 1977).
155. See supra text accompanying notes 95-96.
156. See Jonathan C. Dickey & Marcia K. Mayer, Effect on 10b-5 Damages of the 1995 Private Securities Reform Act: A Forward Looking Assessment 51 Bus. Law. 1203, at 1214-16 (1996) (explaining that in half of 196 cases between 1991 and 1994 the relevant price drop widens over the 90 days by about 2.5%; in 40.3% of cases there is a bounce back and the authors estimate a median of 10.9% by which damages would have been reduced if the new statute had been in effect).
157. Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, § 107, 109 Stat. 737 (1995)
158. (amending 18 U. S. C. § 1964 (c) (1994))
159. (leaving unchanged the utilization of securities fraud as a predicate act for RICO against a person who has been criminally convicted in connection with fraud).
160. 15 U. S. C. A. § 78u-4 (b) (2) (West Supp. 1996) (requiring that a complaint to state with particularity the facts giving rise to a strong inference that the defendant acted with the requisite state of mind).
161. Id. § 78u-4 (b) (4) (giving the plaintiff the burden of proving loss causation).
162. See infra text accompanying note 108.
163. Id. § 78u-4 (a) (adding to the 1934 Act various provisions specifying who can be a plaintiff and a plaintiffs attorney in securities litigation class actions).
164. Response to OMB Request for Views of the Securities and Exchange Commission regarding S. 240, Private Securities Litigation Reform Act of 1995, at 5 (on file with The Business Longer, University of Maryland School of Law).
165. See, e.g., American Gen. Ins. Co. v. Equitable Gen. Corp., 493 F. Supp. 721, 758-59 (E. D. Va. 1980) (holding that when rescission is not possible, the court may award appropriate equivalent monetary relief).
166. See supra text accompanying notes 22-34.
167. See 15 U. S. C. A. § 78u-4 (West Supp. 1996).
168. Id. § 78u-4 (b) (4).
169. CONFERENCE Report, supra note 2, at 41
170. Reprinted in 1996 U. S. C. C. A. N. at 740.