Balancing the Scales

by Christopher Keller

January 19, 2009

The Use of Confidential Witnesses in Securities Class Actions

In enacting the Private Securities Litigation Reform Act of 1995 (PSLRA), Congress placed the success of private actions to enforce the federal securities fraud laws in the hands of confidential witnesses. By requiring that plaintiffs pursuing claims under the federal securities laws plead specific information about the state of mind of defendants without the benefit of any discovery, legislators all but required that, in pleading their cases, plaintiffs rely upon confidential informants willing to place their careers in jeopardy by disclosing nonpublic information about plans to deceive investors. In the midst of a global financial meltdown precipitated by executives' misadventures with securitized debt, there has never been a greater need for these individuals to step forward.

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