December 12, 2025
Thirty years ago this month, Congress overrode a presidential veto to enact a law that changed the landscape of shareholder class action lawsuits. How the Private Securities Litigation Reform Act will continue to change that landscape remains a live issue as courts continue to wrestle with the question of how investors can prove that they’ve been injured by alleged corporate malfeasance.
The PSLRA was passed into law on Dec. 22, 1995, in an effort to address what some lawmakers saw as abusive litigation tactics by shareholders who were allegedly filing frivolous lawsuits for quick payouts.
Whether and to what extent it has cut down on such lawsuits continues to be a hotly debated matter between the plaintiff and defense bars, and those debates are playing out in the courts.
The law came into effect under a cloud of controversy, having been adopted over the objections of then-President Bill Clinton, who vetoed the legislation over fears that it would “have the effect of closing the courthouse door on investors who have legitimate claims.”
But since the PSLRA’s adoption, institutional investors like pension funds have emerged as powerhouse plaintiffs in shareholder class action lawsuits, in part due to a provision in the law that directs judges to consider appointing the plaintiff with the greatest financial stake to lead the case.
Those institutional investors have been able to use their growing influence over the class litigation process to push for high-dollar settlements, according to investor-side attorney Daniel Sommers of Cohen Milstein Sellers & Toll PLLC.
According to Institutional Shareholder Services, over 90% of the largest securities class action settlements entered into since the PSLRA came into effect were in cases led by institutional investors.
Cornerstone Research has reported that between 2015 and 2023, securities class actions settled for an average amount of $50.7 million, while a 2008 paper by Elliott J. Weiss in the Vanderbilt Law Review said pre-PSLRA settlements “rarely” topped $20 million.
“There’s no question that there’s a connection between the emergence of institutional investors as lead plaintiffs and larger recoveries,” Sommers said.
He said institutional investors often have in-house counsel who can supervise their involvement in litigation and often require outside counsel to provide detailed analysis of potential new cases, leading to them only taking on cases that are strongest on their merits and could include large settlements.
Sommers said that winning large recoveries for wronged investors “is consistent with one of the principal goals of the PSLRA — encouraging meritorious cases with significant investor harm while at the same time discouraging weak cases with little investor harm.”
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But courts have been “articulating and rearticulating” what the heightened pleading standard requires ever since the PSLRA was enacted and the Supreme Court has itself already addressed the issue in 2007’s Tellabs Inc. v. Makor Issues & Rights Ltd. , Sommers said.
“It really is so fact bound and so subject to interpretation by a particular district court judge that I don’t think that there’s sort of any broader legal analysis or changes in interpretation of the statute that can be or will be made,” he said.
Whether plaintiffs can meet the heightened standard needed to defeat a motion to dismiss is important because, under the PSLRA, discovery doesn’t kick off until a judge rules on that motion.
Read 30 Years On, PSLRA Debates Still Rage in Securities Cases.