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Federal Securities Litigation Reform

The strength and stability of our nation's securities markets depend on investor confidence in the integrity, fairness and efficiency of these markets. To maintain this confidence, investors must have effective remedies against those persons who violate the antifraud provisions of the federal securities laws. These remedies are found in the system of private litigation, which includes class action suits.

State and local governments participate in the securities markets both as investors of pension funds and temporary cash balances as well as issuers of municipal debt. Therefore, they have an interest in preserving well-established and vital investor rights and protecting themselves from unwarranted and expensive litigation. A meaningful right to seek recovery against those who engage in securities fraud is an essential supplement to SEC enforcement activities and an important deterrent against securities law violations. State and local governments also support improvements in the litigation process that will safeguard against frivolous litigation and abusive practices by participants in the process.

Numerous reforms have been proposed to streamline the federal securities litigation process in response to the concerns of those persons who believe there is a litigation explosion and to address important issues raised in recent Supreme Court decisions. The Government Finance Officers Association (GFOA) believes it is important to move cautiously in reforming the litigation system, however, so that an appropriate balance can be found that ensures the rights of investors and responds to the need to correct flaws in the litigation process.

In general, GFOA supports reforms in the litigation process that preserve investor protection and continue to serve as a deterrent to securities fraud violations, while at the same time discouraging frivolous lawsuits. In particular, the GFOA supports

  • the creation of investor rights to pursue private actions against persons who violate appropriately clear standards in aiding and abetting securities fraud,
  • an extension of the statute of limitations to provide a fair and reasonable period of time to file a securities fraud case,
  • modifications to the securities litigation process to eliminate frivolous suits early in the process and to assure that the interests of plaintiffs' attorneys are consistent with their clients' interests, and
  • appropriately allocating the potential financial liability faced by defendants in securities fraud litigation cases, including providing defendants with a right to obtain a contribution from their co-defendants.


Since state and local governments have a vital interest in improving the capital formation system, protecting investors and deterring frivolous lawsuits, GFOA supports limited and targeted reforms in the system of federal securities litigation.

Adopted: June 13, 1995