Securities litigation generally means the judicial or quasi-judicial process in which adversarial claims or lawsuits arising under state and federal securities laws are adjudicated or heard. Securities litigation merely refers to disputes, the subject matter of which concerns securities or the construction or interpretation of state or federal securities laws. The Securities Act of 1933, the Securities Exchange Act of 1934, and almost without exception state securities laws, contain anti-fraud provisions. Securities litigation includes by this definition, individual investor claims group investor claims or lawsuits arising under state and federal securities laws filed in state or in federal court, and include, and more predominately, class action claims.

Securities arbitration claims before the Financial Industry Regulatory Authority or FINRA, the American Arbitration Association or even Judicial Arbitration and Mediation Services, Inc. or JAMS, where, generally, the anti-fraud provisions of the federal securities laws or state blue sky laws are alleged or at issue.

Federal Securities Laws Protect Investors Against Fraud

The Securities Act of 1933

The Securities Act of 1933 generally only relates to the registration or issuance of securities. For example, unless exempt from registration, it is illegal and actually a criminal offense to sell unregistered securities or securities whose registration has not been approved by the US Securities & Exchange Commission. The Securities Act also provides for civil penalties in connection with the execution of a false registration statement, or the use of written materials of any kind, containing false or misleading statements in connection with the initial sale or distribution of securities.

The anti-fraud provisions of the federal securities laws, include Section 12(1) of the Securities Act of 1933, 15 U.S.C. § 77l(a)(1), and Section 12(2) of the Securities Act of 1933, 15 U.S.C. 77l(a)(2), which “prohibits the sale of securities by means of a materially false or misleading writings, and omissions of material fact in connection with the sale of securities” and Section 10 (b) of the Exchange Act of 1934, and Rule 10b-5, as promulgated thereunder, were a a private plaintiff must show that defendants “knowingly or recklessly made a false representation or omission of a material fact in connection with the sale of securities” that was the proximate cause of the investor’s damages.

Similarly, under state law, most states have adopted the Uniform Securities Act, which generally follows Section 10(b) of the Exchange Act, and provides that: “it shall be unlawful for any person, in connection with the offer, sale or purchase of any security in this State, directly or indirectly:

(a) To employ any device, scheme, or artifice to defraud;

(b) To make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”

The Securities Exchange Act of 1934

The Securities Exchange Act of 1934, as a general matter only relates to conduct of broker dealers and the regulation of securities after they are sold, the anti-fraud provisions of which generally provide that it is unlawful to make false or misleading statements in connection with the sale of securities, provided of course, as modern jurisprudence would have it, the misstatement or omission was material, or important, assuming significance to the reasonable investor, the misstatement was made with the state of mind embracing the intent to deceive or defraud, or at least reckless, was justifiably relied upon by the investor, and actually was the cause of the damage or losses to the investor.

However, under both the Securities Act of 1933 and the Securities Exchange Act of 1934, the private right of action by investors to bring claims is generally limited to the anti-fraud provisions of both acts. Only the government can bring claims or actions for the violation of other provisions of both acts. As a result, many Courts have found claims relating to the failure to supervise, or the sale of unsuitable investments for which no private right of action technically exists, as cognizable under the anti-fraud provisions of the Exchange Act, under the theory that under Section 10b, the failure to disclose that a broker is unsupervised or an investment is unsuitable is an omission of material fact.

Similarly, the violation of self-regulatory rules or FINRA Conduct Rules generally might not create a private cause of action, but under all instances, the violation of these rules, i.e. the minimum standard under which brokers and brokerage firms may conduct itself, support a private right of action for negligence and a breach of these duties.

State Law

State law, even among states adopting the Uniform Model Securities Acts, varies. State law, or blue sky law, related to the issuance of securities is generally modeled after the Securities Act of 1933. Most states, with the exception of perhaps New York, provide for a private right of action for the violation of registration requirements or anti-fraud provisions of the state’s securities acts in connection with the issuance of securities, generally without regard to whether these misstatements were intentional.

Also generally, most states adopting the Uniform Model Securities Act, contain anti-fraud provisions which are analogous to the anti-fraud provisions of the Securities Exchange Act of 1934, and which provide for civil liability for misstatements and omissions or material fact in connection with the sale of securities. However, some states only provide that only the state can pursue these violations and no private right of action exists. At least one state, Pennsylvania only allows these claims against issuers and not stockbroker intermediaries, and yet in other states, states that provide for enhanced remedies such as statutory interest, attorney’s fees, or in some cases treble or triple damages, also provide that the prevailing party is entitled to legal fees, which, when invoked, have been construed to mean if the investor does not win, the investor may be required to pay the brokerage firm’s legal fees.


In any event, litigation is litigation, securities arbitration is litigation. In the case of securities arbitration instead of having your dispute or contest heard by a court, your contest or dispute involving the violation of state or federal securities laws, state consumer protection laws, elder abuse laws, or for negligence, breach of fiduciary duty, or plain old fraud, (based upon the contract you signed when you opened your brokerage account) are decided by a panel of securities arbitrators.

Securities Litigation and Class Action Claims

Securities class action claims are often the only, and the most efficient way for investors to recover damages that arise from a common course of claims against an issuer, or any entity, against whom a common claim or set of claims may be asserted. Securities class action claims are subject to a variety of issues or standards, particular as the result of the Private Securities Litigation Reform Act, and the development of related jurisprudence, concerning the specificity of pleadings, the existence of facts giving rise to a strong inference of scienter, or the state of mind embracing the intent to deceive or defraud, and the stay of discovery pending the adjudication of any motion to dismiss. Various other statutes, and related jurisprudence, including the Securities Litigation Uniform Standards Act of 1998 (SLUSA) and the Class Action Fairness Act of 2005, have curtailed the ability to file class action claims in state court.

In any event, in order to ultimately be certified as a class action, except for settlement purposes where everyone agrees, under Rule 23 of the Federal Rules of Civil Procedure, and generally its equivalent under state law, plaintiffs must show: (a) Numerosity, in that there are so many class members that joinder is impractical; (b) Commonality , in that the claims of the class members involve common factual and legal issues; (c) Typicality, in that the claims of the individual class members are typical to the class; and (d) Adequacy of Representation, that there are no conflicts between the proposed class representative and the putative class and that counsel is experienced and can adequately represent these interests.

Not only can a plaintiff in a class action seek to include all other plaintiffs similarly situated, but also any plaintiff, even a proposed class action representative plaintiff, can file a claim against a set of defendants, or seek to certify a defendant class, were all the defendant participants engaged in a common course of conduct.

Class actions involving investments also need not involve issues related to the federal securities laws or be subject to the PSLRA or SLUSA. Class actions can be and have been successful in recovering money for injured investors against third parties, particularly in Ponzi scheme-like cases involving non-covered securities, under common law theories such as aiding and abetting fraud, aiding and abetting the violation of state securities laws, negligence, and aiding and abetting the breach of fiduciary duty.

In either case, whether a securities related case is being litigated in arbitration before FINRA, or in federal court, in almost any context, the same issues arise as to the “materiality” of any misstatement or omission, i.e. was the information important to investors, “justifiable reliance,” or whether it was reasonable for the investor to rely upon the bad or missing information, and were the investor’s damages directly “caused” by the misstatement or omission.

If you have a securities related claim, you should contact a lawyer. The statutes of limitation with respect to these claims may be as short as one year. Investors that wait or fail to act, while a class action is pending, or which may be ultimately dismissed, are also doing themselves a disservice, and may be bound by a class settlement or unknowingly may be giving up claims against their stockbroker or their brokerage firm as a released party or underwriter of these securities.

Guiliano Law Group

Our practice is limited to the representation of investors. We accept representation on a contingent fee basis, meaning there is no cost to you unless we make a recovery for you. There is never any charge for a consultation or an evaluation of your claim. For more information, contact us at (877) SEC-ATTY.

For more information concerning common claims against stockbrokers and investment professionals, please visit us at

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