Exploring Unexplored Frontiers: The Private Right of Action Under the Louisiana Securities Law

• Author: Stephen Miles
• Position: Mr. Miles has devoted much of his practice to representing individuals and corporations in claims arising under the Louisiana Securities Law and federal securities laws. The views and opinions expressed herein are not necessarily the views and opinions of any other person or entity and should not be viewed as such.
• Pages: 801-828

Exploring Unexplored Frontiers: The Private Right of

Action Under the Louisiana Securities Law

Stephen Miles

INTRODUCTION

In early 2007, an increase in subprime mortgage defaults

caused some softness in the financial markets. Later in 2007, that

softness spread and intensified, causing a liquidity and credit crisis

affecting even prime mortgages. Still later, in 2008, the crisis

expanded further, resulting in the collapse of one of the most

venerated investment banks on Wall Street—Lehman Brothers.

The crisis continued with an economic recession that some say was

the worst since the Great Depression in the 1930s.1

During this period of economic turmoil, stock market indices,

such as the Dow Jones Industrial Average and the S&P 500, tumbled.

The multi-trillion dollar market for fixed-income investments, such as

asset-backed securities, lost even more value. Not surprisingly,

investments of both institutional investors and individuals saving for

retirement declined in value. In the wake of these losses, investors

sued either their financial advisors or others involved in the sale of the

securities that turned out to be poor investments.

Louisiana was not immune to the poor conditions in the

financial markets, and many Louisiana investors whose investments

lost value, like those in other states, brought lawsuits seeking to

recoup their losses. Such investors often invoked the Louisiana

Securities Law, which was originally enacted in 19202 and was

later re-enacted in 1985.3 These investors, or their attorneys, likely

Copyright 2015, by STEPHEN MILES.

 Mr. Miles has devoted much of his practice to representing individuals

and corporations in claims arising under the Lo uisiana Securities Law and federal

securities laws. The views and opinions expressed herein are not necessaril y the

views and opinions of any other person or entity and should not be viewed as

such.

1. See Lawrence Mishel & Heidi Sheirholz, The Worst Downturn Since the

Great Depression, ECON. POLICY INST. (June 2, 2009), http://www.epi.org/publi

cation/jobspict_200906_preview/, archived at http://perma.cc/GYD6-GTN3.

2. State v. Powdrill, 684 So. 2d 350, 353 (La. 1996) (“Louisiana enacted

its first blue sky law in 1920.”). State securities laws, including Louisiana’s, are

often referred to as “blue sky laws.” See id. The Louisiana Supreme Co urt offers

that this moniker is derived from a United States Supreme Court decision

describing the purpose of state securities laws “as the prevention of ‘speculative

schemes which have no more basis than so many feet of blue sky.’” Id. (citing

Steven M. Axler, Comment, The Blue Sky Laws of Louisiana, 41 LOY. L. REV. 1

(1995) (quoting Hall v. Geiger-Jones Co., 242 U.S. 539, 550 (1917))).

3. LA. REV. STAT. ANN. §§ 51:701–724 (2003).

802 LOUISIANA LAW REVIEW [Vol. 75

found that, despite being on the books for years, the Louisiana

Securities Law had infrequently been interpreted by Louisiana

courts, leaving investors with little guidance on certain important

issues.

This Article explores the private right of action under the

Louisiana Securities Law, noting interpretations of that law

provided recently by courts in the wake of the financial crisis and

recession.4 It also examines those provisions of the law that have not

often been interpreted by the courts, offering comparisons of the

language of Louisiana’s private right of action to that of its federal

analogue, section 12(2) of the Securities Act of 1933, which may be

utilized to fill the gap left by the dearth of Louisiana Securities Law

cases that exists even after the 2008–2009 financial crisis.

I. THE FEDERAL SECURITIES ANTIFRAUD PROVISIONS

An understanding of the private right of action under the

Louisiana Securities Law requires a review of the federal securities

private right of action on which the Louisiana Securities Law is

based.5 There are at least two provisions of federal securities laws

that have relevance here: section 12(2) of the Securities Act of

1933 and section 10(b) of the Securities and Exchange Act of 1934

and Rule 10b–5 promulgated thereunder.

A. Section 12(2) of the Securities Act of 1933

In the wake of the stock market crash of 1929, Congress

undertook to regulate transactions in securities.6 As part of this

effort, Congress enacted the Securities Act of 1933. Section 12(2)

of that Act provides a private remedy for purchasers of securities

in an initial distribution of securities where the sale is made by

4. To the author’s knowledge, no such examination of the provisions of the

Louisiana Securities Law has appeared in any publicatio n since 1995 when a

helpful piece was published in the Loyola Law Review. See Axler, supra note 2,

at 1. This Article provides an update in light of the recent financial crisis, with a

focus on the priva te right of action available unde r the Louisiana Securities Law.

5. See Powdrill, 684 So. 2d at 353 (Louisiana courts “look to the federal

law and jurisprudence interpreting the securities law for guidance in interpreting

the Louisiana provisions.”); see also Heck v. Triche, 775 F.3d 265, 282 (5th Cir.

2014) (“Because there is a dearth of law interpreting the definition of a seller

under the state statute, we look to federal law interpreting the Louisiana law’s

model.”).

6. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 (1976).