Despite 1995 Reforms, Shareholder Suits Mount
September 10, 2002
When Congress passed the Private Securities Litigation Reform Act in 1995, it thought it was preventing frivolous class-action lawsuits. But the number of securities class-action suits appears about to set a record this year. According to one expert, "The courthouse doors remain wide open, and the data demonstrate that."
- The number of suits filed this year has reached 179 -- a rate which would establish a record 269 filings for 2002, according to Stanford Law School's Securities Class Action Clearinghouse.
- The rate has picked up over the summer and cash settlements are growing.
- As of June the median settlement amount reached $6 million -- compared to $5.5 million for all of 2001 and $4 million before the act.
- The average settlement is $32.7 million, up from $25 million.
The Association of Trial Lawyers of America had warned, erroneously, that shareholders would lose out if the act were passed.
The act provided "safe harbors" for company financial statements, created a three-year statute of limitations, narrowed liability and required plaintiffs to show direct evidence of fraud.
The act did have the effect of increasing the proportion of cases dismissed -- from 12 percent to 24 percent, supporters note, meaning fewer frivolous cases are getting through the screen.
Source: Sean Higgins, "Shareholder Suits Near a High Despite '95 Reform Legislation," Investor's Business Daily, September 10, 2002.
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