Section 10(b) and the Vagaries of Federal Common Law: The Merits of Codifying the Private Cause of Action Under a Structuralist Approach
Edward A. Fallone | 1997 U. Ill. L. Rev.
Few issues in the field of securities law have proved as controversial as the legitimacy and proper application of the implied private cause of action for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and its regulatory counterpart, Rule 10b-5. The Private Securities Litigation Reform Act of 1995 was expected by many observers to bring about sweeping changes in the implied private cause of action, which critics charge has been abused by overzealous litigants bringing frivolous lawsuits. In his timely article, Professor Fallone argues that most of the Private Securities Litigation Reform Act's changes to the implied private cause of action are merely procedural in nature and fail to address the real problem: the scope of liability for securities fraud under Section 10(b) has been rendered incomprehensible by conflicting court decisions and is no longer consistent with the overall goals of the federal securities laws. The author calls for Congress to reassert control over the content of the implied private cause of action under Section 10(b) by codifying it.
Professor Fallone begins with an overview of the most recent securities legislation and an explanation of why it does little to resolve the ambiguities surrounding the implied private cause of action. He then chronicles the history of the cause of action, describing its elements as they currently exist and how they have evolved over the years. The author then points out specific problems arising from the elements of the cause of action having been left up to the courts, and how the common-law process has resulted in an interpretation of the cause of action that is inconsistent with the overall goals of the federal securities laws. Finally, Professor Fallone recommends that Congress codify the cause of action employing a structuralist approach, a method of statutory construction which emphasizes consistency with the operating principles of a statutory scheme.
* Assistant Professor of Law, Marquette University Law School. B.A. & J.D. 1988, Boston University. Support for this article was provided by a research grant from Marquette University Law School.