SMU Law Review
Many courts rendered opinions during the Survey period affecting the reach of the Texas Securities Act (“TSA”). The Texas Supreme Court acknowledged the TSA’s reach over dealers selling from Texas to non-residents of the state, as well as over registration of securities sold. In contrast, the Fifth Circuit continued Congress’s campaign to limit regulation of interest rate swaps to federal regulatory bodies by defining “security” in the TSA to exclude interest rate swaps. In Kastner v. Jenkens & Gilchrist, P.C., a Texas appellate court determined that lawyers are not subject to liability for aiding and abetting when they merely prepare transactional documents for perpetrators of fraud.
The courts also narrowed the ability of private litigants to use securities laws as a basis for legal action. In Harvestons Securities, Inc. v. Narnia Investments, Ltd., a Texas appellate court established that Board’s certificates would not support a default judgment. The Fifth Circuit, continuing Congress’s efforts to reduce frivolous securities fraud class actions, determined that the factual allegations of scienter relate to the perpetrator’s misstatements. The Fifth Circuit also limited the use of the fraud-on-the-market theory to establish a presumption of reliance by considering some merit questions at the class certification stage, litigation, and by requiring a perceptible market reaction to corrective disclosure.
George Lee Flint, Jr., Texas Annual Survey: Securities Regulation, 61 S.M.U. L. Rev. 1107 (2008).