The Importance of the Prefiling Phase for Securities-Fraud Litigation

The pleading burden that governs securities-fraud litigation is significantly higher than those standards that govern traditional civil cases. The heightened pleading burden applicable to securities cases has transformed the motion to dismiss into something like summary judgment. In fact, to contend with this heightened pleading burden, plaintiffs typically must spend more time in the prefiling phase gathering sufficient, reliable evidence of securities fraud. With almost two decades of litigation under the securities laws’ heightened pleading burden, empirical studies are revealing that certain kinds of evidence are more likely to defeat a motion to dismiss than others. But dismissal statistics and cases are telling in another respect as well. They reveal that some forms of corroboration (SEC proceedings, accounting restatements, bankruptcies) seem more likely to help stave off dismissal than others (insider trading, inferences from shared experience, and accounts from confidential witnesses). This issue—the effective strategies for investigating and pleading securitiesfraud claims—is the subject of this year’s conference sponsored by Loyola University Chicago School of Law’s Institute for Investor Protection.