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The passage of the Private Securities Litigation Reform Act of 1995 has engendered a significant forum shift in class action securities fraud litigation, from federal to state court. This unintended by-product of the Act has reignited debate over our dual federal-state system of securities regulation and in turn has inspired a discussion as to whether Congress should now preempt state securities fraud causes of action. This article argues that preemption is an appropriate, but not the only, solution to these concerns. To support this argument, this article first traces the history of dual state-federal securities regulation within the context of private rights of action. The article then analyzes the new incentives to file state court litigation and extends current empirical analyses by examining more closely the nature and extent of post-Reform Act state litigation. The compiled data demonstrate significant differences between state and federal litigation that suggest that plaintiffs are using state courts to avoid some of the Reform Act's procedural hurdles, a strategy that threatens to undermine the policy choices Congress made in the Act. The article then analyzes the traditional theoretical bases for allocating governmental authority to the states in our federal system, in particular the benefits associated with interstate competition. Such competition cannot occur in the system as currently structured but the article suggests a choice of law regime that may permit competition. Recognizing that such a structural change is unlikely to be adopted, the article concludes by critiquing current preemption proposals.



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