USING STATE INSPECTION STATUTES FOR DISCOVERY IN FEDERAL SECURITIES FRAUD ACTIONS

We propose that plaintiffs in securities fraud actions should use stat e inspection statutes to obtain discovery about potential securities f raud cases. First, we argue that the Private Securities Law Reform Act has substantially increased shareholders' difficulty in uncovering se curities fraud. Next, we show that shareholders have an alternative me thod of investigating fraud: state inspection statutes. We then analyz e cases filed under the Delaware inspection statute to examine the cos ts to plaintiffs of pursuing claims under this statute. We find that t he statutory inspection process is a largely successful, although expe nsive and time-consuming, process. Nevertheless, potential plaintiffs could realize substantial benefits from utilizing inspection statutes in this manner, particularly if Delaware streamlined its inspection pr ocess to make it faster and less costly for shareholders seeking infor mation.