The plaintiffs’ bar and its allies in Congress have called for a repeal or modification of the PSLRA. This paper evaluates the operation of class action lawsuits before and after the act. The hard evidence does not support repealing the PSLRA. In fact, securities class actions are being filed at a record pace. And although a higher percentage of these lawsuits is being dismissed now than before the act, the ones that survive lead to larger settlements.
The PSLRA raised the standard required before plaintiffs’ attorneys could drag a defendant company through the expense of discovery. The lawsuits that meet this higher standard are likely to be less frivolous and are consequently worth more in settlement negotiations. The combination of higher settlements and a smaller percentage of such cases getting to trial suggests that the class action lawsuits under the PSLRA are doing a more cost‐effective job of deterring corporate fraud. This conclusion is bolstered by the fact that post‐PSLRA complaints have more particularized allegations that are more highly correlated with factors related to fraud. In short, the PSLRA is working well, although not as well as intended, and there do not appear to be grounds to either repeal or significantly amend it. A better course for reform would be to change the damages remedy in securities fraud class actions to focus on deterrence.