Paying-to-Play in Securities Class Actions: A Look at Lawyers' Campaign Contributions

Congress enacted the Private Securities Litigation Reform Act of 1995 (PSLRA) to reduce plaintiffs’ lawyers’ influence in securities fraud class actions. The PSLRA’s presumption that the class member with the largest financial interest would be named lead plaintiff was meant to place the class, instead of its lawyers, in charge of the litigation. Congress hoped that institutional investment funds, such as public pension funds, would serve as the new lead plaintiffs. At first, it seemed that the PSLRA was successful at installing institutional investors as lead plaintiffs and reducing the power imbalance between class counsel and their clients. Today there are new fears that plaintiffs’ lawyers have co-opted securities class actions by paying-to-play. “Paying-to-play” describes the practice of lawyers making campaign contributions to public pension funds’ political leadership in order to gain favorable consideration by the funds for appointment as class counsel. Many reforms have been proposed and enacted in response to paying-to-play fears. Aside from a few anecdotal reports, however, no examination of campaign contributions from plaintiffs’ lawyers to elected officials exists in the legal literature. This Note presents the first comprehensive report on campaign contributions that serve as the basis for paying-to-play concerns. My data suggest that law firms do indeed contribute to the investment funds that select them as class counsel, ruling out one possible response to paying-to-play fears, namely, that these contributions are not being made in the first place. This Note also provides guidance for future research, and in doing so, touches upon issues such as the reasons that firms donate and how funds make counsel-selection decisions.