DEFINITION of 'Private Securities Litigation Reform Act – PSLRA'

Legislation passed by Congress in 1995 to stem the filing of frivolous or unwarranted securities lawsuits. The PSLRA increased the amount of evidence plaintiffs were required to have before filing a securities fraud case with the federal courts. It also changed the way securities class action lawsuits were handled by giving judges the authority to determine plaintiffs and to take other actions to reduce legal system abuses.

BREAKING DOWN 'Private Securities Litigation Reform Act – PSLRA'

A shareholder may file a securities fraud claim in federal court to recover damages sustained as a result of the fraud. Before the PSLRA, plaintiffs could file a lawsuit simply because a stock price changed significantly and hope that the discovery process would reveal potential fraud. After the PSLRA, plaintiffs were required to bring forth particular fraudulent statements made by the defendant, to allege that the fraudulent statements were reckless or intentional and to prove that they suffered a financial loss as a result of the alleged fraud.

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