U.S. Supreme Court Ruling Will Prevent Certain Securities Fraud Class Actions

By Leslie McCallum, Charles E. Dorkey III and Christopher Caparelli

The U.S. Supreme Court has unanimously ruled that certain securities fraud class actions involving nationally traded securities may not be brought under state securities law. The decision affirms the Supreme Court’s view that federal, not state, law should be the principal vehicle for asserting class action securities fraud claims.

In Merrill Lynch v. Dabit, the plaintiffs were brokers who sued Merrill Lynch under Oklahoma law, alleging that fraudulent analyst reports induced them to continue to hold securities in their personal and client accounts longer than they otherwise would have. Under the Securities Litigation Uniform Standards Act of 1998 (SLUSA), federal law preempts state law fraud claims "in connection with the purchase or sale" of securities. Dabit argued that his claim was not preempted because he neither purchased nor sold securities, but instead held onto them. The Supreme Court ruled that