Shariah’s Black Box

[211] This is especially true after the passage of the Private Securities Litigation Reform Act of 1995 (PSLRA), which ratcheted up the scienter pleadings requirements and froze discovery during a defendant’s motion to dismiss to eliminate frivolous suits and to eliminate the “leverage” plaintiffs use by propounding reams of discovery requests early on to tie-up company management and extort a settlement. For a good discussion of the pleadings requirements post-PSLRA, see Ray J. Grzebielski & Brian O. O’Mara, Whether Alleging “Motive and Opportunity” Can Satisfy the Heightened Pleading Standards of the Private Securities Litigation Reform Act of 1995:Much Ado About Nothing, 1 DePaul Bus. & Com. L.J. 313 (2003).

[212] Certainly this is true in the Second Circuit Court of Appeals, given the ruling in Press v. Chemical Investment Services Corp., 166 F.3d 529, 538 (2d Cir. 1999) (“‘Whether or not a given intent existed is, of course, a question of fact.’” (quoting SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1467 (2d Cir. 1996))); see also id. (“‘Whether a given intent existed is generally a question of fact.’” (quoting In re Time Warner, 9 F.3d 259, 270-71 (2d Cir. 1993))). For an argument in favor of the Second Circuit’s approach to scienter, see Daniela Nanau, Analyzing Post-Market Boom Jurisprudence in the Second and Ninth Circuits: Has the Pendulum Really Swung Too Far in Favor of Plaintiffs?, 3 Cardozo Pub. L. Pol’y & Ethics J. 943 (2006).

[213] Restatement (Second) Of Torts §552(1) (1977).

[214] See supra notes 211-212; see also Cook, supra note 138 (providing an overall examination of the jurisdictional issues raised by the recent federal legislation affecting class actions alleging securities fraud).

[215] See generally Loss & Seligman, supra note 10, at 1019 & n.345.

[216] See generally id. at 1227-39 (except the discussion on “expertizing” at 1232-33).

[217] Per its terms, Section 12(2) creates civil liability for misrepresentations when someone “offers or sells a security” and does so “by means of a prospectus or oral communication.” 15 U.S.C.S. § 77l(a)(2); see also Gustafson v. Alloyd Co., 513 U.S. 561, 569 (1995) (stating that a “prospectus” is a specific kind of document under the 1933 act and misrepresentations of the written kind must be in the prospectus to be the basis for an action under Section 12(2)).

[218] 15 U.S.C. § 77l(a)(2) (2006).

[219] 17 C.F.R. § 275.206(4)-1 (2008).

[220] For the SEC Final Rule, see 72 Fed. Reg. 44,756, 44,761 (Sep. 10, 2007) (codified at 17 C.F.R. pt. 275).