The law was designed to discourage "strike suits," or class action suits brought by plaintiffs with little financial risk in the company any time the stock price fell. Before this law, there were certain certain "professional plaintiffs" that held a small number of shares in lots of companies. As soon as one of the stocks tanked, the plaitiff would file a suit--usually in partnership with one of a small handful of lawyers that "specialized" in this sort of thing--against the company. These frivolous nuisance suits cost a lot of money to defend against or settle. The law didn't stop strike suits altogether, but it made many harder to bring. If a company commits genuine fraud, it's still possible to bring a class action against them.--Bond Head19:50, 26 July 2006 (UTC)[reply]
