Fourth Circuit holds that sanctions for violation of Rule 11 are required in securities action

In MORRIS v. WACHOVIA SECURITIES, INC., the Fourth Circuit has a good discussion of Rule 11 and its requirements in securities actions. This case concerned a failure to sanction lawyers for misstatements. At the end of a private securities fraud action, the district court must evaluate on the record whether each party and lawyer complied with Rule 11(b) "as to any complaint, responsive pleading, or dispositive motion" filed. In this case, the district court found three Rule 11(b) violations by Morris's counsel: the unsubstantiated stock loan claim in the original and first amended complaints, the selective citation of testimony in the brief opposing summary judgment, and the mischaracterization testimony in that same brief. The district court declined to impose sanctions, but the Fourth Circuit reversed and remanded. The panel held that the Private Securities Litigation Reform Act mandates a sanction in any private securities action where a party or lawyer violates Rule 11(b).