Friday, January 24, 2014

Former House and Senate Oversight Chairs urge Supreme Court not to Consider PSLRA as Endorsement of Fraud-on-the-Market Reliance Presumption

Former House and Senate securities oversight chairs and former SEC Chair Chris Cox clarified to the U.S. Supreme Court that the Court should not consider that Congress acquiesced in the fraud-on-the-market presumption of reliance when it passed the Private Securities Litigation Reform Act in 1995. In an amicus brief filed in a case this term challenging the continuing efficacy of the presumption of reliance, the former chairs said that Congressional enactment of the PSLRA did not codify, modify or repeal the fraud-on-the-market presumption of reliance endorsed by the Court in its 1988 ruling in Basic, Inc, v. Levinson 485 U.S. 224. Rather, in enacting the PSLRA, Congress simply left the fate of that judicially-created presumption to a future Congress or to the Court. Thus, amici urged the Court to decide the merits of the challenge to the continued efficacy of the fraud-on-the-market reliance presumption in Halliburton v. Erica P. John Fund, Dkt. No. 13-317, without reference to the PSLRA and any assertion of legislative endorsement or acquiescence.

Amici included, among others, former Senate Banking Committee Chair Al D’Amato (R-NY), former Rep. Michael Oxley (R-OH), Chair of the House Financial Services Committee, former House Energy and Commerce Committee Chairs Tom Bliley (R-VA) and Billy Tauzin (R-LA), former SEC Chair Chris Cox, who was the principal author of the House version of the PSLRA while serving in Congress (R-CA), and former SEC Commissioner Laura Unger, who is a former Counsel to the Senate Banking Committee. Amici were intimately involved in the drafting and enactment of the Private Securities Litigation Reform Act of 1995.

The brief points out that the text of the PSLRA is silent with respect to the element of reliance in a private securities-fraud suit. While the House initially considered undoing Basic’s presumption of reliance, the Senate never voted on any aspect of reliance and the House-Senate conference report did not address the reliance issue. The legislative history indicates that Congress was silent in response to various calls to modify, overturn, or codify the Basic presumption of reliance. The chairs advised the Court not to take this congressional silence as either an implicit acceptance or rejection of Basic’s fraud-on-the-market theory. Legislative inaction is not evidence of acquiescense, contended amici. Moreover, finding such acquiescence would seriously misread the legislative history of the PSLRA and disregard the legislative process. Amici noted that it was particularly reasonable for Congress not to resolve the debate over the Basic presumption, as that doctrine is of judicial origin, not congressional.