This article explores the rise of event-driven securities class action lawsuits and the larger rise of securities suits based on mismanagement allegations. In the 1977 case Santa Fe Industries, Inc. v. Green, the US Supreme Court held that corporate mismanagement does not constitute securities fraud. This holding, however, has been undermined in the wake of increased "event-driven" securities litigation over the past several years. Event-driven securities litigation results when something negative happens in connection with a company's operations. This snowballs into the company's stock prices falling and the company being sued for securities fraud, alleging that the company should have disclosed this negative operational event earlier.
But how is this increase consistent with Santa Fe? This article takes a look at the answer to that from several perspectives, concluding that event-driven securities cases are turning corporate mismanagement into private claims for violation of the federal securities laws. These cases are thereby violating core principles of what the federal securities laws were intended to encompass.
Read "Corporate Mismanagement Becomes Event-Drive Securities Litigation" in its entirety.