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A Researcher’s Guide to Class Action Securities Fraud Litigation

A Researcher’s Guide to Class Action Securities Fraud Litigation. By Darby K. Hildreth Information is current as of March 4, 2002. Table of Contents. I. INTRODUCTION II. IDENTIFYING RESEARCH TERMS III. SECONDARY SOURCES A. Legal Encyclopedias 1. Am. Jur. 2d 2. C.J.S.

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A Researcher’s Guide to Class Action Securities Fraud Litigation

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  1. A Researcher’s Guide to Class Action Securities Fraud Litigation By Darby K. Hildreth Information is current as of March 4, 2002

  2. Table of Contents I. INTRODUCTION II. IDENTIFYING RESEARCH TERMS III. SECONDARY SOURCES A. Legal Encyclopedias 1. Am. Jur. 2d 2. C.J.S. B. A.L.R. Annotations 1. Federal: A.L.R. Fed. 2. State: A.L.R. 3d, 4th, 5th C. Legal Periodicals 1. LegalTrac 2. Westlaw D. Treatises E. Restatements By Darby K. Hildreth

  3. Table of Contents (continued) IV. PRIMARY AUTHORITY A. Cases 1. Federal Digests a. U.S. Supreme Court Digest b. Federal Practice Digest 4th 2. Regional Digest a. Pacific Digest 3. State Digest a. Colorado Digest B. Statutes 1. Federal: U.S.C.A. a. Securities Exchange Act of 1934 b. Legislative Documents c. U.S. Constitutional Authority 2. State: West’s C.R.S.A. a. Colorado Securities Act b. Limiting Liabilities of Dirs./Officers c. Uniform Securities Act (1985) By Darby K. Hildreth

  4. Table of Contents (continued) IV. PRIMARY AUTHORITY (...continued) B. Statutes (...continued) 2. State: West’s C.R.S.A. (...continued) d. Model Business Corporation Act C. Administrative Materials 1. Federal: CFR a. Federal Agency Web Site b. Agency Decisions 2. State: CCR a. State Agency Web Site b. Agency Decisions V. PRACTICE MATERIALS A. Looseleaf Services 1. CCH, Inc. 2. BNA, Inc. 3. Matthew Bender By Darby K. Hildreth

  5. Table of Contents (continued) V. PRACTICE MATERIALS (...continued) B. Federal 1. Am. Jur. Trials 2. Am. Jur. Proof of Facts 3. Am. Jur. Pleading and Practice Forms 4. Causes of Action 5. Moore’s Federal Practice 6. Wright’s Federal Practice and Procedure 7. Applicable Forms C. State 1. West’s Colorado Law Finder 2. West’s Colorado Methods of Practice a. Colorado Business Corporation Act Deskbook b. Colorado Civil Rules Annotated c. Colorado Civil Trial Practice 3. Colorado Law Annotated 4. Applicable Forms By Darby K. Hildreth

  6. Table of Contents (continued) VI. ONLINE MATERIALS A. Commercial: Westlaw B. Internet 1. Applicable Web Sites & Organizations a. State Sources b. Federal Sources c. Other “Independent” Sources 2. Specific Publications of the Organizations VII. OTHER SOURCES A. Jury Instructions B. Self Help Books for Lawyers C. Self Help Books for Clients-Investors VIII. CONCLUSION By Darby K. Hildreth

  7. I.Introduction • § 10(b) of the 1934 Securities Exchange Act, together with SEC Rule 10b-5, were enacted to protect investors from “insider trading” and from “material misrepresentations or omissions” by Officers and Directors of public companies which have stock that is trading in the secondary markets • Unlike other litigation, securities fraud cases typically • do not go to trial, but rather settle for the amount of the Directors’ & Officers’ Liability Insurance • the American Rule for Attorneys’ Fees does not apply and instead, plaintiffs’ counsel are retained on a contingent fee basis • the Private Securities Litigation Reform Act (PSLRA) applies to all federal securities fraud cases and requires more rigorous pleading standards than Federal Rule Civil Procedure 9(b) [“fraud with particularity”] • the PSLRA also creates a huge procedural difference from other types of litigation because discovery is “stayed” pending the outcome of defendants’ 12(b) motion to dismiss • So while securities fraud litigation is a very complex area to research, the following guide will help simplify the process By Darby K. Hildreth

  8. II.Identifying Research Terms • General Search Terms • Litigation • Class Action • Securities Regulation • Insider Trading • Duty of Loyalty • Fiduciary Duty • 1934 Securities Exchange Act • Specific Search Terms • PSLRA (Private Securities Litigation Reform Act) of 1995 • § 10(b) & Rule 10b-5 • Elements: 1) Scienter; 2) Materiality; 3) Causation; 4) Reliance; 5) Damages • Material Misrepresentation or Omission • “In Connection With” • Civil Procedure Rule 23 [Class Actions] By Darby K. Hildreth

  9. VI.Online Materials A. Commercial: Westlaw • Summary of database coverage: • Database Identifier: “FSEC-ALL” [provides the user with Combined Federal Securities Materials, which includes Federal Securities and Blue Sky Case Law; Federal Statutes, Rules and Regulations; and Federal Administrative Law] • KeySearch: Select “Securities Law;” Select “Insiders;” Select “Fraud;” Choose a source: “Cases with West Headnotes;” Select a State Court’s Jurisdiction (e.g., “Colorado State” or “Colorado Federal & State”); and/or Select a Federal Court’s Jurisdiction (e.g., “All Federal Cases” or “Tenth Circuit Federal Cases” or “Securities Law Cases”); Add “search terms (optional);” Click “Search;” and case results are displayed. • “Directory” Search: Select “Topical Materials by Area of Practice;” Select “Securities;” Select the desired Source (e.g., “Federal Securities Materials Combined” or “U.S. Code Annotated”); Enter a word or phrase in the “Terms and Connectors Query;” Click “Search;” and all relevant results are displayed. • “Directory” Search: Select “Topical Materials by Area of Practice;” Select “Litigation;” Select the desired Source (e.g., “Combined Federal & State Cases” or “Jury Verdicts, Settlements & Judgments”); Enter a word or phrase in the “Terms and Connectors Query;” Click “Search;” and all relevant results are displayed. By Darby K. Hildreth

  10. VI. (continued)Online Materials B. Internet 1. Applicable Web Sites & Organizations a. State Sources • Colorado Division of Securities (a unit of the Colorado Department of Regulatory Agencies) – http://www.dora.state.co.us/securities/index.htm • North American Securities Administrators Association (NASAA) – other State securities regulators; an association of State and provincial securities administrators, which issue “Statements of Policy” on various substantive and procedural questions – http://www.nasaa.org/nasaa/abtnasaa/find_regulator.asp b. Federal Sources • U.S. Securities and Exchange Commission (SEC) – the federal securities regulator - http://www.sec.gov/ • National Association of Securities Dealers, Inc. (NASD) – regulates the securities industry and “oversees virtually all U.S. stockbrokers and brokerage firms” - http://www.nasdr.com/ • Commodity Futures Trading Commission (CFTC) – “protects market participants against manipulation, abusive trade practices and fraud” - http://www.cftc.gov/cftc/cftchome.htm By Darby K. Hildreth

  11. VI. (continued)Online Materials B. Internet (…continued) 1. Applicable Web Sites & Organizations (…continued) b. Federal Sources (…continued) • National Fraud Information Center (NFIC) – “offers consumers advice about promotions in cyberspace and route reports of suspected online and Internet fraud to the appropriate government agencies; and “fights telemarketing fraud by improving prevention and enforcement” - http://www.fraud.org/ • U.S. Federal Trade Commission (FTC) – “works to enhance the smooth operation of the marketplace by eliminating acts or practices that are unfair or deceptive. In general, the Commission's efforts are directed toward stopping actions that threaten consumers' opportunities to exercise informed choice” - http://www.ftc.gov/ c. Other “Independent” Sources • Investor Protection Trust (IPT) – “serves as an independent source of non-commercial investor education materials and assists in the prosecution of securities fraud” - http://www.investorprotection.org/ By Darby K. Hildreth

  12. VI. (continued)Online Materials B. Internet (…continued) 1. Applicable Web Sites & Organizations (…continued) c. Other “Independent” Sources (…continued) • Legal Information Institute at Cornell Law School (LII) – provides a category “Current Awareness” and link “Eye on the Courts,” which allows you to track down and gain “quick access to appellate decisions that are in the news.” In addition, under the category “Current Awareness” and link “Big Ear,” this site supplies “current legal resources on the net” and offers “a view of what's new on the Net for lawyers, and of what people are talking about,” while providing the convenience of subscribing to email-bulletins to keep current with U.S. Supreme Court decisions. - http://www.law.cornell.edu/ • WashLaw WEB at Washburn University (WashLaw) – provides a category “10th Circuit,” which is considered the “premier source” for locating past as well as keeping current with 10th Circuit opinions. In addition, under the category “Topical Index,” this site supplies a list of “Internet Resources” with relevant web site links for “Securities Law.” - http://washlaw.edu/ • Securities Class Action Clearinghouse at Stanford Law School (The Clearinghouse) – “provides detailed information relating to the prosecution, defense, and settlement of federal class action securities fraud litigation,” including “full text searchable copies of more than 2000 complaints, briefs, filings, and other litigation-related materials.” - http://securities.stanford.edu/ By Darby K. Hildreth

  13. VI. (continued)Online Materials B. Internet (…continued) 1. Applicable Web Sites & Organizations (…continued) c. Other “Independent” Sources (…continued) • Securities Industry Association (SIA) – “nearly 700 securities firms (including investment banks, broker-dealers, and mutual fund companies)” are members of the SIA, which aspires to “maintain the public's trust and confidence in the securities industry and the US capital markets.” Its web site organizes articles into the following topics: “arbitration,” “brokers,” “investors,” and “corporate finance.” - http://www.sia.com/ • American Bar Association (ABA) – provides a category “Entities,” and link “Sections,” which gives access to the organization’s specific sections - http://www.abanet.org/home.html, in particular: • Business Law Section - http://www.abanet.org/buslaw/home.html • Litigation Section - http://www.abanet.org/litigation/home.html 2. Specific Publications of the Organizations • American Bar Association’s Securities Litigation Committee - publishes a quarterly journal entitled Securities News, which contains cutting-edge articles on the specific areas of securities litigation and class action securities fraud cases By Darby K. Hildreth

  14. VI. (continued)Online Materials B. Internet (…continued) 2. Specific Publications of the Organizations (…continued) • American Bar Association’s Section of Litigation publishes a quarterly journal entitled Litigation, which addresses issues that confront litigators in every field and seeks to do so through practical and readable articles discussing all aspects of litigation • American Bar Association’s Business Law Section publishes a news magazine, every other month entitled, Business Law Today, which is “a quick update” for busy business lawyers, including “color graphics and no footnotes.” • American Bar Association’s Business Law Section publishes a quarterly journal entitled, The Business Lawyer, which “contains articles of significant interest to the business lawyer, including case law, analysis, developing trends and annotated listings of recent literature.” By Darby K. Hildreth

  15. VII.Other Sources A. Jury Instructions • Model Jury Instructions: Securities Litigation (American Bar Association, 1996) - provides sample jury instructions with Supporting Authorities for both plaintiffs and defendants Chp. 1: Securities Litigation Generally [p.5-13] § 1.03 - More than One Plaintiff § 1.08 - Sophisticated Investors § 1.09 - Interstate Commerce Chp. 4: Section 10(b) [p.79-113] § 4.01 - Section 10(b) Claims - Introduction § 4.02 - Elements for Primary Liability Under Section 10(b) § 4.03 - Secondary Liability Under Section 10(b) § 4.04 - Damages • Colorado Jury Instructions 4th - Civil by Colorado Supreme Court Committee on Civil Jury Instructions (West Group, 2001 Supplement) Vol. 2: Chp. 26 - Breach of Fiduciary Duty § 26:1 - Elements of Liability § 26:2 - Fiduciary Relationship - Defined § 26:3 - Fiduciary Relationship Arising Out of a Confidential Relationship - Elements § 26:4 - Duties of a Fiduciary - Defined § 26:5 - Actual Damages • Colorado Courtroom Handbook For Civil Trials by Victoria C. Swanson (Continuing Legal Education in Colorado, Inc., May 2001 Supplement) - “covers every phase of civil trials in both state and federal courts and provides concise, accurate information on both procedural matters and evidentiary issues, with citations to the most pertinent authorities” Chp. 1: Pre-Trial § 1.1 - Colorado State Pre-Trial Practice § 1.2 - Colorado Federal District Court Practice Chp. 19 - Jury Instructions By Darby K. Hildreth

  16. VII.Other Sources A. Jury Instructions (…continued) • Colorado Jury Instructions for Civil Trials by Continuing Legal Education in Colorado, Inc., 2000 Supplement) Chp. 19: Deceit Based on Fraud § 19:1 - False Representation - Elements of Liability § 19:2 - Nondisclosure or Concealment - Elements of Liability § 19:3 - False Representation - Defined § 19:4 - Material Fact - Defined § 19:5 - Nondisclosure - Duty to Disclose § 19:6 - Concealment - Defined § 19:7 - False Representation - Reliance Defined § 19:17 - Actual Damages B. Self Help Books for Lawyers • McElhaney’s Trial Notebook (3rd Edition) by James W. McElhaney (American Bar Association, 1994) - a comprehensive book on trial technique that is written in Plain English and incorporates famous quotes and stories for easy understanding for the reader • Survey of Securities Class Actions and Derivative Suits 1999: A Report of the Subcommittee on Class Actions and Derivative Suits Securities Litigation Committee by Ronald Jay Cohen (American Bar Association, 2001) - a survey of significant opinions in securities class actions for 1999 to inform the reader about developments in the law • Corporations: Examples and Explanations, 3rd edition, by Lewis D. Solomon & Alan R. Palmiter (Aspen Law & Business, 1999) - discussing the fiduciary duties of care and loyalty for directors and officers [§§ 11.2 & 13.1-13.5]; securities fraud under Rule 10b-5 [§§ 22.1-22.5]; and insider trading [§§ 23.1-23.3.4] By Darby K. Hildreth

  17. VII.Other Sources B. Self Help Books for Lawyers (…continued) • Securities Regulation: Examples and Explanations by Alan R. Palmiter (Aspen Law & Business, 1998) - discussing Rule 10b-5 [§§ 9.1-9.5.4] and Insider Trading [§§10.1-10.2.4] • Securities Regulation: In a Nutshell, 6th edition, by David L. Ratner (West Group, 1998) - discussing the 1934 Securities Exchange Act antifraud provisions and Rule 10b-5 [§§ 18-19]; civil liabilities & damages [§§ 38-40]; and State regulation [§§ 45-49] • Securities Litigation Uniform Standards Act of 1998: Law and Explanation “provides explanation and text of the 1998 Act, which made federal court the exclusive venue for most securities fraud class actions. The Act was passed to ensure that securities fraud class actions involving securities traded on national markets are governed by a single set of uniform standards. Discussion focuses on the Act’s provisions concerning covered class actions, stay of discovery and preservation of state court jurisdiction in certain cases. Also included is text and analysis of the legislative history: the conference report, the Senate Banking Committee Report, and the House Commerce Committee Report. Analysis of the legislative history includes coverage of substantial debate over the proper standard for pleading scienter in a securities fraud action” (CCH Incorporated, Nov. 1998) C. Self Help Books for Clients-Investors • The Intelligent Investor: A Book of Practical Counsel by Benjamin Graham & Warren E. Buffett, 4th Rev. Edition (HarperCollins Publishers, December 1985) – “offers sound and safe principles for investing” • CNBC Guide to Money and Markets: Everything You Need to Know About Your Finances and Investments by CNBC & Jeff Wuorio, 1st edition (John Wiley & Sons, December 15, 2001) By Darby K. Hildreth

  18. VII.Other Sources C. Self Help Books for Clients-Investors (…continued) • The Secret Code of the Superior Investor: How to Be a Long-Term Winner in a Short-Term World by James K. Glassman (Crown Publishing Group, January 2, 2002) • The All-Season Investor: Successful Strategies for Every Stage in the Business Cycle by Martin J. Pring (John Wiley & Sons, March 1992) • Essential Lessons for Investment Success: Learn the Most Important Investment Techniques from the Founder of Investor’s Business Daily by William J. O’Neil (McGraw-Hill Professional, January 2000) • Street Words: An Essential A to Z Guide for Today’s Investor by David L. Scott (Houghton Mifflin Company, September 1997) By Darby K. Hildreth

  19. VIII.Conclusion Traps to Avoid in Conducting § 10(b) Securities Fraud Research: 1. Recognize that § 10(b) is accompanied by SEC Rule 10b-5, so agency opinions and releases play an important role in interpreting the correct meaning 2. A § 10(b) claim is the “common name” for a cause of action under the 1934 Securities Exchange Act, but in researching this claim, it is found under 17 C.F.R. § 240.10b-5 3. Since § 10(b) is an implied remedy, which is based on federal common law, it is key to keep the dates of court opinions in mind when conducting your research because the law dramatically changed after December 1995, when Congress enacted the PSLRA (Private Securities Litigation Reform Act) 4. Federal courts have exclusive jurisdiction over § 10(b) claims, pursuant to 15 U.S.C.A. § 78aa, so to avoid the embarrassment of removal or dismissal, file your case in federal court, not state court (leave state common law claims like breach of fiduciary/duty of loyalty to state venues) By Darby K. Hildreth

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