NCPA - National Center for Policy Analysis


August 7, 2008

Private securities class action lawsuits present a serious threat to the health of U.S. businesses, the prosperity of American families and the strength of our nation's global competitiveness, according to a new analysis released by the U.S. Chamber Institute for Legal Reform (ILR).

Driven by the multibillion dollar plaintiffs' lawyer industry, the system exacts enormous costs on our economy while betraying the individual investors it is designed to assist," said ILR president Lisa A. Rickard.  For example:

  • Securities class action litigation caused the destruction of nearly $25 billion of shareholder wealth between 1995 and 2005.
  • The current securities class action lawsuit system forces businesses to mitigate potential damages by settling lawsuits rather than risk going to trial, generating approximately $51.8 billion in settlements over the past decade.

Among a number of potential legislative changes suggested in the report, ILR proposes:

  • Enacting the "Securities Litigation Attorney Accountability and Transparency Act," which would cast light onto the relationships between attorneys and plaintiffs, eliminate pay-to-play conflicts and other suspicious connections between attorneys and elected officials, introduce a competitive bidding process for the selection of lead counsel, and call for further investigation into the hourly fees paid to plaintiffs' attorneys in securities class action litigation.
  • Ensuring coordination between public and private enforcement in order to promote efficient compensation and prevent wasteful, duplicative recovery by shareholders.
  • Providing defendants equal access to appeal denials of motions to dismiss a suit in order to reduce the intense pressure to settle meritless suits following the denial of such dispositive motions.
  • Curbing abuse of civil discovery, the costs of which fall disproportionately on defendant companies and create enormous pressure to settle, by shifting the cost of discovery from defendants to plaintiffs when discovery requests are unjustified.

Source: Press Release, "Securities Class Action Litigation: The problem, its impact and the path to reform," Institute for Legal Reform, July 2008.


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