The Private Securities Litigation Reform Act of 1995: A discussion of three provisions

A commentary attempts to provide a brief background of the issues debated in the passage of the Private Securities Litigation Reform Act of 1995 and to explore potential implications of 3 provisions of the Reform Act. The first provision is the "fair share" proportionate liability rule that the Reform Act requires for allocating damages among liable parties. Conditions that trigger joint and several liability are summarized, and an example highlighting some of the allocation issues under the new proportionate rule are presented. The second provision is the deployment of damage caps. The commentary seeks to 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 auditors. It is concluded that the actual impact of the Reform Act depends on how courts implement the Act and how states reform their securities laws.