December 22, 2025
The Private Securities Litigation Reform Act prompted a sea change in securities class actions that reshaped the plaintiff’s bar and empowered institutional investors to take charge of cases.
The Private Securities Litigation Reform Act was once feared as the death of the securities class action.
Thirty years later, securities class actions are alive and kicking, even if getting there required law firms to change their business models and for a new type of plaintiff to come forward.
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Remaking the Plaintiff’s Bar
Daniel Sommers, a partner at Cohen Milstein Sellers & Toll, was only a few years into what would be a decades-long career as a plaintiff’s attorney when the PSLRA passed.
“It was a new world,” he said. “The landscape of securities class actions had been radically changed.”
Before the PSLRA, the first to file a case would gain the lead plaintiff position. That race to the court was typically won by retail investors who held only a few shares of a company, Sommers said.
These plaintiffs would “have less incentive to supervise the lawyers to push the case along; many of them weren’t particularly sophisticated; they weren’t incentivized or suited to aggressively monitor the litigation and monitor the counsel,” said Sommers.
The PSLRA upended this system by stating that the person or entity with the largest financial stake in a case would be the class representative.
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Putting an Institutional Investor in the Driver’s Seat
Empowering institutional investors led to other changes.
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Sommers also recognized a difference in who the lead plaintiff is.
“There’s no comparison between someone who purchased ten shares of x, y, z company on one hand and a large state-wide pension fund with hundreds of billions of dollars under management,” said Sommers.