FRAUD AND FEDERALISM - PREEMPTING PRIVATE STATE SECURITIES FRAUD CAUSES OF ACTION

The passage of the Private Securities Litigation Reform Act of 1995 ha s engendered a significant forum shift in class action securities frau d litigation, from federal to state court. This unintended by-product of the Act has reignited debate over our dual federal-state system of securities regulation and in turn has inspired a discussion as to whet her Congress should now preempt stake securities fraud causes of actio n. This article argues that preemption is an appropriate, but not the only, solution to these concerns. To support this argument, this artic le first traces the history of dual state-federal securities regulatio n within the context of private rights of action. The article then ana lyzes the new incentives to file state court litigation and extends cu rrent empirical analyses by examining more closely the nature and exte nt of post-Reform Act state litigation. The compiled data demonstrate significant differences between state and federal litigation that sugg est that plaintiffs are using state courts to avoid some of the Reform Act's procedural hurdles, a strategy that threatens to undermine the policy choices Congress made in the Act. The article then analyzes the traditional theoretical bases for allocating governmental authority t o the stares in our federal system, in particular the benefits associa ted with interstate competition. Such competition cannot occur in the system as currently structured, but the article suggests a choice of l aw regime that may permit competition. Recognizing that such a structu ral change is unlikely to be adopted, the article concludes by critiqu ing current preemption proposals.