Question

What is the purpose of the Private Securities Litigation Reform Act (PSLRA)?

Group of answer choices

To make it more difficult to sue companies for fraud based on the stock price having gone down.

To make sure that the SEC is notified if a company commits material illegal acts.

To discourage class action lawsuits by stockholders.

A and B

A, B, and C

Answer 1

Answer is A, B and C.

To make it more difficult to sue companies for fraud based on the stock price having gone down.

The PSLRA was designed to limit frivolous securities lawsuits. The PSLRA was passed to curb the abusive practices committed in private securities litigation, including the routine filing of lawsuits against issuers of securities and other,s whenever there is a significant change in an issuer's stock price, without regard to any underlying culpability of the issuer, and with only faint hope that the discovery process might lead eventually to some plausible cause of action.

To make sure that the SEC is notified if a company commits material illegal acts.

The PSLRA adds additional duties to a firm's auditor, including a requirement to report evidence of illegal activity to the firm's Board of Directors, or the Board of Directors' Audit Committee. The Board of Directors or sub-unit is consequently obligated to notify the Securities and Exchange Commission of such notification by auditors within one day. If the auditing accountant does not receive a copy of the SEC notification within one day, the auditor is obliged to withdraw from the engagement and notify the SEC directly of the report made to the Board.

To discourage class action lawsuits by stockholders.

The PSLRA was meant to deter what was perceived to be an abundance of meritless class action lawsuits made possible under the earlier Acts.