The Staff Report notes that the discovery stay may be avoided by the filing of a parallel state action. Fifty-five percent of the state court cases in a sample reviewed by the staff (35 out of 55) had allegations that were essentially identical to those brought by the same law firm in federal court. Some observers believe that these cases were filed primarily to get discovery for use in the federal action. Others note, however, that state courts may offer advantages to plaintiffs other than discovery. These include, depending on the state: lower pleading standards, longer statutes of limitation, non-unanimous jury verdicts, joint and several liability, and aiding and abetting liability for secondary actors.

Lead Plaintiff Provision

The lead plaintiff provision creates a presumption that the plaintiff or group of plaintiffs with the largest financial stake in the lawsuit during the class period should be appointed as class representative, with the authority to choose class counsel. The Staff Report found that institutions sought to be named lead plaintiff in only eight of the 105 class actions filed during the Act's first year. It appears that in 1997 institutions have continued to remain on the sidelines as lead plaintiffs. In the 124 federal class actions filed to date, we are aware of only six in which institutions have sought lead plaintiff status.

Why are more institutions not coming forward to be lead plaintiff? In preparing the Staff Report, the staff met with representatives of both public and private institutional investors. The institutions' primary concern is litigation-related expense. Institutions also expressed concern that service as lead plaintiff could expose them to liability to other class members. For example, other class members could sue the lead plaintiff if the terms of the settlement were claimed to be inadequate. Finally, and most relevant to the issue presented here, we have been told that institutions sometimes achieve better results by proceeding with their own individual suits. This observation is supported by the fact that at least six individual securities actions have recently been brought by institutions in federal court.

Effect On State Court Litigation