2004 - LR - PSLRA, SLUSA, and Defrauded Retirement Investors: Overlooked Side Effects of a Potent Legislative Medicine, by Michael J. Borden

  • 2004 - LR - PSLRA, SLUSA, and Defrauded Retirement Investors: Overlooked Side Effects of a Potent Legislative Medicine, by Michael J. Borden  ---  [BonkNote]  ---  60p
    • Contract with America
  • (p52 / 730) - Nevertheless, the annuities class actions arose just as an earlier round of class actions against the insurance industry was winding up. These "market conduct" cases concerned some pretty egregious behavior by insurers."264 Chief among the frauds in these suits were churning practices, in which agents directed customers to move funds from one policy to another for no apparent reason other than the additional commissions garnered by the brokers, and the "vanishing premiums" scandal. 265
  • Vanishing premiums 
  • .... 
  • As the vanishing premium litigation drew to a close, the annuities actions were filed and they sometimes included other charges of misdeeds involving "clone funds."272
  • This Article highlights a harmful and far-reaching unintended consequence of two major pieces of securities litigation reform legislation1 that were passed as part of the Republican party's Contract with America in the mid-1990s.
    • These reforms were justified, in part, on the grounds that they would benefit investors by improving disclosure of financial information by corporations.
      • However, for many aggrieved investors, the effect of the legislation was just the opposite.
    • Because of inadequate and misleading disclosures made by life insurance companies and their registered representatives, consumers were induced to purchase inappropriate investments carrying excessive fees that reduced the value of their retirement nest eggs.

    • 2. Securities Litigation Uniform Standards Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227 (1998) (codified as amended in scattered sections of 15 U.S.C.).

    • 3. Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-69, 109 Stat. 737 (1995) (codified as amended in scattered sections of 15 U.S.C.).

  • Accusing defendants of breach of fiduciary duties, fraud, fraudulent concealment, and deceit, plaintiffs stressed the superior knowledge possessed by defendants and their "failure to state facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading." 46   
    • While the claims came under various legal rubrics,'47 the theory of recovery generally boiled down to an assertion that defendants' behavior amounted to a failure of disclosure.
    • 43  Nationwide v. Nationwide Fin. Servs., Inc. - No. 98-CVH10-8393 (Ohio C.P., Franklin City) [hereinafter Nationwide Complaint];