WASHINGTON-Following the House’s lead, three Senate lawmakers have introduced legislation to curb frivolous class-action securities lawsuits against high-tech firms. Such cases have migrated to state courts since a 1995 law made it more difficult to bring such litigation to federal court.
The Securities Litigation Reform Act of 1997, offered by Sens. Phil Gramm (R-Texas), Pete Domenici (R-N.M.) and Christopher Dodd (D-Conn.), would close a loophole in the 1995 law by keeping such lawsuits in federal court.
The 1995 bill attempted to strike a balance by requiring full public disclosure in high-tech public offerings while shielding firms whose stock is nationally traded from class-action lawsuits. Since then, class-action securities lawsuits in state courts reportedly have nearly doubled.
“The 1995 act restored some level of common sense to the securities litigation system and now Congress needs to finish the job by ensuring that their efforts are not circumvented by the lawyers at the state level,” said Kimberly Pinter, director of corporate finance and tax at the National Association of Manufacturers.
Wireless firms, computer companies and other high-tech entities can have volatile stock swings, which make them especially vulnerable to class-action lawsuits by disgruntled shareholders.
Nextel Communications Inc., the nation’s top dispatch radio operator, was sued by a group of shareholders after its stock declined following early technical problems a few years ago that since have been corrected.
Nextel is not alone. Mobile Telecommunication Technologies Corp., ProNet Inc., Cellular Technical Services Co. Inc. and other cutting edge wireless firms also have felt the wrath of disgruntled shareholders.
“We don’t want to kill American competitiveness and American innovation with lawsuits. We want people, when they file lawsuits, to have real complaints, to have real clients and to comply with basic rules that allow us to have fair trials with an opportunity for people to defend themselves,” said Gramm.
In May, Reps. Rick White (R-Wash.) and Anna Eshoo (D-Wash.) introduced a bill to remove class-action securities litigation from state courts. White’s district includes AT&T Wireless Services Inc., SEA Inc., Microsoft Corp. and other high-tech firms. Silicon Valley is home to voters in Eshoo’s district.
High-tech class-action lawsuits have been a thorny issue for the Clinton administration. Clinton vetoed securities reform legislation two years ago, only to be overridden by the Senate. Consumer advocates oppose measures to limit shareholder relief in court.
