Why Securities Litigators Should Think Broadly Like Trial Lawyers

Stockholder litigation is on the rise both in volume and notoriety. The number of federal securities actions filed jumped in 2023, while the plaintiffs’ bar has been buoyed by high-profile victories in the Delaware Court of Chancery, such as Tornetta v. Musk and West Palm Beach Firefighters v. Moelis.

Early career attorneys who want to establish themselves in this flourishing field can benefit by understanding several key drivers for successful securities litigation defense.

The best securities litigators are trial lawyers. There’s a vast difference between the mindset of litigators and trial lawyers. Both seek to persuade their audience through application of legal principles, factual evidence, and logic. But a true trial lawyer never forgets the human, emotional side of the story or the importance of putting on a good show.

Securities litigation matters are often resolved solely in front of a judge, not a jury. Pre-trial motions are always decided by judges, the Delaware Chancery Court only has bench trials (a judge and no jury), and federal securities cases almost never reach a jury trial.

Nevertheless, judges, like juries, want to determine whether the parties are good, bad, or something in-between. The best securities litigators never miss a chance to subtly position their client as the virtuous party. And they understand how every step of a lawsuit can set their clients up for a trial victory, even if the case is ultimately resolved pre-trial.

Put yourself in the shoes of the executives, directors, and deal lawyers. Securities litigation always happens in the aftermath of a challenged business decision, such as disclosing information to stockholders (federal securities claims) or merging with another company (fiduciary duty claims). To defend that business decision, you must fully understand and embrace it.

Without a strong grasp of how the decision-makers weighed numerous pros and cons, and without an intimate knowledge of the industry and circumstances where the decision-makers operated, it’s impossible to persuade anyone that the right decision was reached.

Further, litigation is almost always a hindsight-based examination of past decisions, so it’s vital to understand the informational limitations that the decision-makers faced at the time. Walking a mile in the decision-makers’ shoes is the best way to defend the path they took.

Sometimes the best defense is a good offense. Securities litigation is in many respects an asymmetric conflict for defendants. The case begins with a complaint telling the plaintiff’s handcrafted version of events.

In seeking a dismissal, defendants are constrained to citing outside facts that could undermine a plaintiff’s narrative—often to the frustration of businesspeople who have never encountered such litigation procedures. If the complaint survives dismissal, the burdens of discovery often fall primarily on the defendants’ shoulders.

Despite these dynamics, the best securities litigators seek to develop their client’s story and put the plaintiff on its back foot at each stage of the lawsuit. For example, a motion to dismiss might depend on technical legal issues rather than the merits of the challenged transaction. But if the transaction obtained an attractive premium for stockholders, you should highlight that fact on page one of your brief.

Even against a class-action plaintiff, there are opportunities to attack a plaintiff’s theories and standing through discovery requests and motions.

If a plaintiff sent a text expressing enthusiasm for a transaction that’s now being challenged, that message can undermine the plaintiff’s expert witnesses. If a plaintiff never reviewed the Securities and Exchange Commission filing containing the allegedly misleading disclosures, that may loom large with a jury (despite legal arguments that it’s sometimes unnecessary for plaintiffs to have reviewed the challenged disclosure).

Learn the SEC filings, financial statements, and investment bankers’ analyses. Knowing the evidence at your disposal is one of the primary ways that early-career securities litigators can add value to their teams.

Federal securities lawsuits often focus on cherry-picked excerpts from SEC filings, but the entirety of the company’s public disclosures is available to the defense. These filings typically span hundreds of pages and often disclose the information that the plaintiff contends was concealed from the public; at a minimum, they add essential context to plaintiff’s allegations.

A tenacious securities litigator often can refute a plaintiff’s claims at the motion to dismiss phase by gaining an encyclopedic knowledge of the company’s public statements. As the case progresses, litigators should gain an MBA-level familiarity with the applicable financial statements and investment bankers’ analyses. These documents are fertile ground for evidence on nearly every issue in securities litigation matters, particularly with respect to damages calculations.

Coordinate with the various stakeholders. A successful securities litigation defense requires cooperation with several different groups. These lawsuits tend to have a large cast of characters.

A non-exhaustive list includes the defendants themselves (who are often represented by different lawyers), in-house counsel, the client’s other businesspersons, third-party advisers (such as bankers), non-party witnesses, expert witnesses, insurers, and e-discovery vendors.

Strong teamwork and collaboration skills are essential. Effective communication and organization can ensure that information is being appropriately shared, that there is broad alignment on strategy, and that costs are minimized. Less-experienced associates can play a central in this effort by tracking and anticipating developments in the litigation and considering which stakeholders’ input is required.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Craig Zieminski is a member of Vinson & Elkins’ complex commercial litigation group and co-head of the firm’s securities litigation practice.

Jeffrey Crough is a litigator and partner at Vinson & Elkins.

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