The dual pillars of the Private Securities Litigation Reform Act of 19951 (PSLRA) and the Securities Litigation Uniform Standards Act2 (SLUSA) create a deliberate obstacle course for securities fraud class action plaintiffs. The PSLRA imposes strict pleading requirements for claims brought under the federal securities laws, and SLUSA prevents class action plaintiffs from circumventing those requirements by styling their claims under state or common law to take advantage of more lenient pleading standards.

Predictably, plaintiffs press for a narrow reading of SLUSA and try to plead their claims as remotely as possible from the purchase or sale of a covered security that would bring their claims within SLUSA’s ambit of preclusion. Defendants, by contrast, argue for a broader reading of the statute that sweeps within its protective scope claims that involve securities losses regardless of how such claims are literally pled. A number of cases from the U.S. District Court for the Southern District of New York, including actions brought by plaintiffs who lost money as a result of the Bernard Madoff fraud, have opened a new-front in the battle over SLUSA’s reach. At least for now, these cases have resulted in a split in authority on the question of whether investors in funds which themselves invest either directly, or indirectly, in covered securities, may avoid the obstacles posed by SLUSA and ultimately by the PSLRA.

Statutory Framework

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