The American Electronics Association, which represents some 3,000 US companies, has welcomed the passage of a bill through Senate that would discourage those meretricious class-action lawsuits that have been strangling the high-tech community, but the Washington lobby does not cover itself with glory, because it styles the bill an act, which it would only become when President Clinton signed it, and when we rang the lady named as the contact at the bottom, she did not actually know what was in the bill, but fortunately, the New York Times was on the case too. The Private Securities Litigation Reform Bill of 1995 is aimed at stopping shareholders alleging fraud by stockbrokers, accountants or corporate officials when a company’s share price drops suddenly. These ‘abusive securities lawsuits,’ brought by ambulance-chasing lawyers that disgrace their calling by specialising in this type of litigation, have plagued high technology companies with volatile share prices in recent years. The plaintiffs in a class action are often new investors holding very few shares of the defendant company. But this is big business. This year alone some 300 securities lawsuits have been filed, and, according to the Association, 93% are settled for an average of $8.6m each, making a $2,400m industry of which a third plus expenses goes to the lawyers. Senator Pete Domenici, Republican, New Mexico, described lawyers promoting this type of lawsuit were nothing more than a small group of sharks. Several provisions in the legislation should discourage this practice. The bill would prohibit lawyers from recruiting plaintiffs and paying them a bonus to agree to bring a lawsuit.
Proportion to their guilt
It also limits defendants’ liability to damages in proportion to their guilt, where previously the most wealthy defendant may have had to pay all the damages regardless of the amount for which they were personally responsible. Another provision of the bill allows corporate executives to give projections of future performance without these later being used in a lawsuit if proven untrue. The bill provides a ‘safe harbour’ for all statements except those knowingly made with the intent to mislead investors. Consumer groups, lawyers and government regulators said the bill would mean small investors would be be left with little recourse against fraud – levels of genuine fraud are tiny compared with the number of frivolous lawsuits brought against an estimated one in two of all high-tech companies at some time during their lives, and fraud is covered by plenty of other legislation and by the very powerful and ever-watchful Securities & Exchange Commission. In many cases, class action lawsuits appear to be brought in the belief that the investor has a divine right for all his investments to be in the money at all times. American Electronics Association president William Archey commented that in the current system companies suffer, consumers suffer employees suffer and yes, investors suffer. A similar measure passed the House of Representatives in March; both would modify laws dating to the 1930s. The two bills must now be harmonised, and the new bill passed by both houses. The House also passed a separate bill intended to discourage lawsuits by making people pay their opponents’ court costs if they bring unsuccessful claims.
