A Researcher

1
A Researchers 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

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 Wests C.R.S.A.
• a. Colorado Securities Act
• b. Limiting Liabilities of Dirs./Officers
• c. Uniform Securities Act (1985)

4
Table of Contents (continued)

• IV. PRIMARY AUTHORITY (...continued)
• B. Statutes (...continued)
• 2. State Wests 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

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. Moores Federal Practice
• 6. Wrights Federal Practice and Procedure
• 7. Applicable Forms
• C. State
• 1. Wests Colorado Law Finder
• 2. Wests 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

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

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

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

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
  Courts Jurisdiction (e.g., Colorado State or
  Colorado Federal State) and/or Select a
  Federal Courts 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.

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

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/

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/

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 organizations specific
  sections - http//www.abanet.org/home.html, in
  particular
• Business Law Section - http//www.abanet.org/busla
  w/home.html
• Litigation Section - http//www.abanet.org/litigat
  ion/home.html
• 2. Specific Publications of the Organizations
• American Bar Associations 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

14
VI. (continued)Online Materials

• B. Internet (continued)
• 2. Specific Publications of the Organizations
  (continued)
• American Bar Associations 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 Associations 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 Associations 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.

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
• 261 - Elements of Liability
• 262 - Fiduciary Relationship - Defined
• 263 - Fiduciary Relationship Arising Out of
  a Confidential Relationship - Elements
• 264 - Duties of a Fiduciary - Defined
• 265 - Actual Damages

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
• 191 - False Representation - Elements of
  Liability
• 192 - Nondisclosure or Concealment -
  Elements of Liability
• 193 - False Representation - Defined
• 194 - Material Fact - Defined
• 195 - Nondisclosure - Duty to Disclose
• 196 - Concealment - Defined
• 197 - False Representation - Reliance
  Defined
• 1917 - Actual Damages
• B. Self Help Books for Lawyers
• McElhaneys 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

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 Acts 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)

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 Investors Business Daily by William
  J. ONeil (McGraw-Hill Professional, January
  2000)
• Street Words An Essential A to Z Guide for
  Todays Investor by David L. Scott (Houghton
  Mifflin Company, September 1997)

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)