Rogue Missives Friday, June 20, 1997

The In-Securities Act
Part 1: The In-Securities Act of 1995?
-- Louis Corrigan  (RgeSeymour)

In December of 1995, Congress overrode a presidential veto and passed the Private Securities Litigation Reform Act of 1995, a law that significantly revised the anti-fraud provisions that had been in place since 1934. Now Congress is debating further changes.

Initiated by the National Investor Relations Institute (NIRI) and high-profile Silicon Valley executives, among others, the Act made it more difficult for shareholders to file class-action lawsuits. Proponents of the legislation argued that an increasing number of these complaints were merely frivolous nuisance suits filed after a significant drop in a company's stock price and designed to extort settlements from companies that didn't want to endure the costly distraction of litigation.

In exchange for this shift of power in favor of U.S. corporations, supporters said the Act would open up the flow of information by providing a safe harbor for companies to make certain forward-looking statements -- the type that can prove most instructive to investors. As the argument goes, capital will flow more efficiently, and thus our economy will work better, when investors are more fully informed about future prospects of American companies. Opponents, on the other hand, said the law provided corporate America with a license to lie and would strip investors of their ability to bring even meritorious suits.

A year and a half later, there's renewed debate over the Reform Act because its proponents now believe it didn't go far enough. They are supporting new bills, one recently introduced by Representatives Anna G. Eshoo (D-California) and Rick White (R-Washington), another by Rep. Tom Campbell (R-California), that could force all securities class-action cases, even those filed in state courts, to be tried under the more restrictive federal law. The Reform Act supporters have gained confidence from their success last fall in defeating Proposition 211, a California proposal backed by plaintiffs' attorneys that would have made that state a more attractive venue for class-action securities suits.

Part 2: Closing Loopholes?

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