Post by jcline on Sept 22, 2007 9:24:29 GMT -5
SEC Turning Attention
To Shareholder Suits
By KARA SCANNELL
September 22, 2007 12:58 a.m.
WASHINGTON -- The Securities and Exchange Commission, turning its attention to shareholder litigation, is planning to hold a roundtable to explore possible reforms this spring.
The review comes as the Bush administration and business groups have identified shareholder lawsuits as causing major harm to the U.S. financial markets' competitive position. Three bipartisan groups have written lengthy reports urging reforms in the area, ranging from limiting settlement amounts if an SEC enforcement action is involved to providing clarity on a fraud statute frequently used in private lawsuits. A high-stakes case that could extend liability is pending before the U.S. Supreme Court.
Now, six law professors have petitioned the SEC in a letter dated Aug. 2 to "take a leadership role in studying [private securities litigation] and making or recommending policy changes if and where appropriate."
The SEC, under Republican Chairman Christopher Cox, has said it would study the recommendations from the private committees, and in response to the professors, it said it will hold a roundtable in the first quarter of 2008.
"The Commission will continue to take a leadership role in exploring these topics in greater detail," Mr. Cox said in a statement. "We look forward to a continuing public discussion to help inform the debate surrounding these issues that will give the Commission the opportunity to learn what, if any, further specific actions might be warranted on these topics."
Mr. Cox has a history delving into the issues of shareholder litigation. As a California congressman, he coauthored the 1995 Private Securities Litigation Reform Act, aimed at reducing frivolous shareholder litigation. But Mr. Cox surprised some litigation-watchers earlier this year by urging the U.S. Solicitor General to take the side of shareholders seeking to hold third parties primarily liable for the fraud committed by another company. The Treasury Department and administration took the opposite position, citing competitiveness. The Supreme Court is hearing the case next month. Yet, given the attention placed on shareholder lawsuits and the political jockeying around its potential harm to the U.S. economy, the professors say the SEC should act.
"If that perception is well-founded, the Commission should seek reform. If it is not well-founded, the Commission should be a strong voice in countering the misperception. Either way, the Commission must become involved deeply enough to understand the reality, not just the politics and posturing," according to the letter.
The thrust of the SEC roundtable, so far, will address the concerns raised by the law professors, including who bears the cost of paying for attorneys fees in these lawsuits, the role insurance plays in indemnifying companies or individuals, the percentage of investors who file claims and collect portions of settlements, and how the economics of a settlement change when the defendant is a third-party. The professors also recommend studying whether securities class action deter behavior, the impact of the PSLRA, and how the SEC's Fair Funds program, granted under Sarbanes Oxley, can be coordinated with settlements from private lawsuits.
SEC officials say they are open to studying these matters but the roundtable doesn't necessarily portend future rulemaking.
Write to Kara Scannell at kara.scannell@wsj.com
online.wsj.com:80/article/SB119041954129435885.html?mod=googlenews_wsj
To Shareholder Suits
By KARA SCANNELL
September 22, 2007 12:58 a.m.
WASHINGTON -- The Securities and Exchange Commission, turning its attention to shareholder litigation, is planning to hold a roundtable to explore possible reforms this spring.
The review comes as the Bush administration and business groups have identified shareholder lawsuits as causing major harm to the U.S. financial markets' competitive position. Three bipartisan groups have written lengthy reports urging reforms in the area, ranging from limiting settlement amounts if an SEC enforcement action is involved to providing clarity on a fraud statute frequently used in private lawsuits. A high-stakes case that could extend liability is pending before the U.S. Supreme Court.
Now, six law professors have petitioned the SEC in a letter dated Aug. 2 to "take a leadership role in studying [private securities litigation] and making or recommending policy changes if and where appropriate."
The SEC, under Republican Chairman Christopher Cox, has said it would study the recommendations from the private committees, and in response to the professors, it said it will hold a roundtable in the first quarter of 2008.
"The Commission will continue to take a leadership role in exploring these topics in greater detail," Mr. Cox said in a statement. "We look forward to a continuing public discussion to help inform the debate surrounding these issues that will give the Commission the opportunity to learn what, if any, further specific actions might be warranted on these topics."
Mr. Cox has a history delving into the issues of shareholder litigation. As a California congressman, he coauthored the 1995 Private Securities Litigation Reform Act, aimed at reducing frivolous shareholder litigation. But Mr. Cox surprised some litigation-watchers earlier this year by urging the U.S. Solicitor General to take the side of shareholders seeking to hold third parties primarily liable for the fraud committed by another company. The Treasury Department and administration took the opposite position, citing competitiveness. The Supreme Court is hearing the case next month. Yet, given the attention placed on shareholder lawsuits and the political jockeying around its potential harm to the U.S. economy, the professors say the SEC should act.
"If that perception is well-founded, the Commission should seek reform. If it is not well-founded, the Commission should be a strong voice in countering the misperception. Either way, the Commission must become involved deeply enough to understand the reality, not just the politics and posturing," according to the letter.
The thrust of the SEC roundtable, so far, will address the concerns raised by the law professors, including who bears the cost of paying for attorneys fees in these lawsuits, the role insurance plays in indemnifying companies or individuals, the percentage of investors who file claims and collect portions of settlements, and how the economics of a settlement change when the defendant is a third-party. The professors also recommend studying whether securities class action deter behavior, the impact of the PSLRA, and how the SEC's Fair Funds program, granted under Sarbanes Oxley, can be coordinated with settlements from private lawsuits.
SEC officials say they are open to studying these matters but the roundtable doesn't necessarily portend future rulemaking.
Write to Kara Scannell at kara.scannell@wsj.com
online.wsj.com:80/article/SB119041954129435885.html?mod=googlenews_wsj