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The following is not meant to be legal advice.

On December 5, 2006 the Second Circuit, in In re Initial Public Offering Securities Litigation, No. 05-3349, limited the ability of plaintiffs to certify class actions in large, complex cases, such as those involving securities fraud.

The underlying action, a securities fraud litigation, arose out of class action lawsuits filed in 2001 against 55 underwriters and hundreds of companies and their officers, in connection with a series of Initial Public Offerings (IPOs) conducted during the “stock market bubble” of the late 1990s.

The complaints alleged a scheme to defraud the investing public in violation of federal securities laws. The Second Circuit held that plaintiffs must actually establish each Rule 23 requirement before a court will certify a class. Once a class is certified, the financial risk to defendants often becomes too high to continue to litigate, and defendants settle.