WASHINGTON-Two House lawmakers introduced legislation last week to stem the tide of high-tech class action securities lawsuits that have migrated from federal courts to state courts in the aftermath of congressional efforts two years ago to curb such litigation at the federal level.
The Private Securities Litigation Reform Act of 1995 was designed to cut down the filing of frivolous lawsuits by shareholders in high-tech companies whose stock prices are prone to big jumps and declines. Congress overrode a Clinton veto to pass the bill.
Class action securities litigation traditionally has been filed in federal court, but a recent Stanford University study found the venue had shifted since the enactment of the 1995 law.
Wireless firms, like cutting-edge computer companies, are vulnerable to lawsuits from disgruntled shareholders.
ProNet Inc. recently agreed to pay $5 million to settle securities class action lawsuits filed in federal and state courts after the paging company’s stock took a dive last June.
Nextel Communications Inc., the nation’s top specialized mobile radio operator, got hit with a class action lawsuit in 1995 after major stock fluctuation.
“It’s time to stop the trial lawyers from finding ways around the system and make the changes that are needed to give investors more information and start-up companies a better chance to succeed,” said Rep. Rick White (R-Wash.), whose district is home to AT&T Wireless Services Inc., SEA Inc., Microsoft Corp. and other high-tech firms.
Rep. Anna Eshoo (D-Calif.), a cosponsor of the bill who speaks for Silicon Valley, said the “initiative is needed to complete the work we began in the last Congress.
Two years ago, we created a legal environment that would encourage companies to provide consumers with forward-looking statements that could be used to make informed stock purchases. But instead of curbing frivolous lawsuits based on such statements, a loophole in the law merely channeled them to the state courts.”
The White-Eshoo measure could transfer from state court to federal court class action securities lawsuits involving nationally traded securities on the New York Stock Exchange, NASDAQ, or the American Stock Exchange.
The authors said the Securities Litigation Uniform Standards Act, which has 11 Republican and 11 Democratic cosponsors, is designed to preserve the authority of state regulators to police state securities markets.
The Consumer Federal of America and the Government Finance Officers Association oppose the White-Eshoo bill, saying it represents new attempts to limit the access of defrauded investors to justice in the courtroom.
The groups pointed out that a Securities and Exchange Commission report concluded that legislation, such as the White-Eshoo bill, is unnecessary.
Last November, California voters handily rejected a proposition to water down the 1995 federal securities litigation reform. President Clinton, despite vetoing the 1995 bill, opposed Proposition 211.
In an April 10 letter to Senate Majority Leader Trent Lott (R-Miss.), the American Electronics Association said, “Uniform national standards for securities regulations are of paramount importance to the health and vitality of America’s high-technology industry.”
