By: Brian P. Murray
In 1995, amidst much fanfare and after millions of dollars in
campaign contributions, Congress enacted the first substantive
amendments to the two cornerstone acts of the federal securities
laws since they were passed in the 1930s. Entitled the Private
Securities Litigation Reform Act of 1995 (the “PSLRA”), one of its
purposes is to attract large investors to serve as class
representative and fill the newly created position of “lead
plaintiff,” whose job it is to choose lead counsel and fulfill the
other responsibilities of a class representative. The theory
behind the lead plaintiff provision is that a plaintiff with a
greater economic stake in the litigation would more effectively
monitor and control lead counsel.
What was left unclear in the PSLRA was exactly who would qualify
as the large-investor plaintiff. Many people, and institutions,
delegate responsibility for managing their money to asset managers
or investment advisors. While title to the account remains in the
name of the owner, the decisions concerning which securities to buy
and sell and the actual execution of the orders is handled by the
asset manager. Further complicating matters, an asset manager
will sometimes have purchased the stock for the accounts of
multiple clients, so that an issue arises as to whether the
plaintiff is one person (the asset manager) or a group of persons
(the asset manager’s clients).
This Article will discuss the rationale behind including or
excluding asset managers as lead plaintiffs or class
representatives and the various approaches taken by courts in
dealing with the issue.