Stock Lawyer Securities Fraud and Class Action Lawsuits 3

Question 1

Under Section 11 of the Securities Act of 1933, which party bears the burden of proof regarding due diligence?

Accepted Answer

The defendant must prove they exercised due diligence as an affirmative defense

Answer

Unlike Rule 10b-5 claims, Section 11 imposes strict liability on issuers and requires non-issuer defendants such as underwriters and directors to prove due diligence as an affirmative defense.

Question 2

What does the term 'materiality' mean in the context of securities fraud?

Accepted Answer

There is a substantial likelihood that a reasonable investor would consider the information important

Answer

Materiality is established when there is a substantial likelihood that a reasonable investor would consider the omitted or misstated fact important in making an investment decision.

Question 3

Which Supreme Court case held that the PSLRA's 'strong inference' of scienter must be cogent and at least as compelling as any opposing inference of non-fraudulent intent?

Accepted Answer

Tellabs, Inc. v. Makor Issues & Rights, Ltd. (2007)

Answer

In Tellabs (2007), the Supreme Court held that a 'strong inference' of scienter must be more than merely plausible — it must be cogent and at least as compelling as any innocent explanation for the defendant's conduct.

Question 4

In a securities class action settlement, what role does the court play before approving the settlement?

Accepted Answer

The court must determine that the settlement is fair, reasonable, and adequate for class members

Answer

Courts must conduct a fairness hearing and independently determine that any class action settlement is fair, reasonable, and adequate to protect the interests of absent class members before granting approval.

Question 5

What is the primary function of a 'claims administrator' in a securities class action settlement?

Accepted Answer

To process proof of claim forms and distribute settlement funds to eligible class members

Answer

A claims administrator is a neutral third party appointed to manage the settlement fund, process claims from class members, verify eligibility, and distribute payments to qualifying investors.

Stock Lawyer Practice Test

Stock Lawyer Practice Test

Stock Lawyer Securities Fraud and Class Action Lawsuits 3