SG Cowen Securities Corp. v. United States District Court for the Northern District of California

The defendants in this securities class action lawsuit seek a writ of mandamus vacating the district court’s order for limited discovery. We hold that the order violated the discovery stay provision of the Private Securities Litigation Reform Act of 1995, and grant the writ.

I

The plaintiffs filed this class action lawsuit alleging violations of federal and state securities law. The complaint alleges that on the morning of October 8, 1997, Rational Software Corporation (“Rational”) Chief Executive Officer Paul Levy told SG Cow-en Securities Corporation (“Cowen”) analyst Rehan Syed that Rationales earnings would be lower than expected. Syed then allegedly alerted Cowen’s customers, who in turn began selling Rational shares. Rational’s stock price, which began the trading day at $15 % deteriorated to $11 % by mid-afternoon when trading in Rational stock was halted. The stock price continued its downward spiral the following day, closing near $9 per share. Trading vol *911 ume was unusually high; on the day of the Syed conversation, volume increased fivefold over Rational’s three-month daily average. Plaintiffs filed this class action lawsuit against defendants Rational, Levy,…