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The U.S. securities laws have repeatedly been assailed as burdensome or ineffective. Reform efforts have conversely been attacked for undermining an
effective mechanism by which shareholders can discipline management. Moreover, even reformers have been dissatisfied with the effectiveness of their product. For example, after enacting the Private Securities Litigation Reform Act of 1995, members of Congress became concerned that their efforts to rein in frivolous private lawsuits under the federal securities laws were being circumvented by state court filings and introduced legislation to preempt such action. There is some validity to their concern: In a report to President Clinton on the impact of the 1995 Act, the Securities and Exchange Commission (SEC) cited preliminary studies indicating a decrease in federal court filings and an increase in state court filings. This Article contends that the current legislative approach to securities regulation is mistaken and that preemption is not the solution to frivolous lawsuits.
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