Senate Oks Legislation To Curb Suits Measure Intended To Curtail Frivolous Securities Lawsuits
The Senate voted by a decisive margin Wednesday to curb stockholders’ suits against companies and their accountants. Backers said the bill is sorely needed to stop frivolous lawsuits, but consumer groups called it an outrage, sure to stifle legitimate complaints.
The overwhelming 70-29 vote, with one member voting present, coupled with a 325-99 House vote for a more expansive version in March, means proponents may have sufficient votes to override a possible presidential veto.
White House aides have only hinted at a veto. The bills now go to a House-Senate conference to resolve their differences.
Business interests who favored the measure as well as consumer groups and trial lawyers who opposed it waged extensive lobbying efforts on Capitol Hill.
Proponents argued the measure will help tame an out-of-control legal system that rewards predatory plaintiffs’ lawyers for filing frivolous lawsuits against businesses, particularly high-tech companies.
“The situation that exists today was a mess, and it needed and demanded to be cleaned up,” Sen. Chris Dodd, D-Conn., one of the bill’s main sponsors, said on the concluding day of the five-day debate.
Senate Banking Committee Chairman Alfonse M. D’Amato, R-N.Y., argued the measure would reduce legal bills that companies pay to fight class action shareholder lawsuits. Such suits, he said, consume an average of more than 1,000 hours in management time and typically cost a company about $690,000.
“These suits, which unnecessarily interfere with and increase the cost of raising capital, are often based on nothing more than a company’s announcement of bad news, not evidence of fraud,” D’Amato said.
A coalition of consumer groups, including the American Association of Retired Persons and Consumer Federation of America, argued the bill goes too far in protecting companies from lawsuits.
“What this is all about in my view is to emasculate the right of the individual, the private investor, from securing relief and recovery from securities fraud,” said Sen. Richard Bryan, D-Nev. He predicted that as a result of the bill, “We are going to see innocent investors by the thousands deprived of their day in court.”
Sen. Paul Sarbanes, D-Md., reminded colleagues that by voting for the bill, “We are ignoring the advice of all of the regulators.” Securities and Exchange Commission Chairman Arthur Levitt Jr. and the North American Securities Administrators Association, or NASAA, a coalition of state regulators, both opposed significant parts of the bill.
Mark Griffin, a NASAA director and Utah securities regulator, said the bill is an overkill response to abuses by a handful of lawyers.
“It’s unfortunate that anecdotes of a few abuses will control and alter the course of investor protection,” Griffin said.
The bill would require that defendants pay damages only in proportion to their degree of guilt.
Another provision would grant immunity from lawsuits for executives who make forward-looking statements about their companies, such as predictions of growth, that don’t pan out.