SENATE PASSES SECURITIES LITIGATION UNIFORM STANDARDS ACT

On May 13, by a vote of 79 to 2, the Senate passed legislation mandating that securities fraud lawsuits against nationally traded companies be litigated in Federal courts. The bill strengthens the enforcement of the Private Securities Reform Act of 1995, for which the profession and business coalitions fought diligently.

Many trial attorneys were circumventing the intent of the 1995 legislation to limit frivolous lawsuits by filing class action suits in states with less restrictive laws on abusive practices. S 1260 will allow for removal to Federal courts those class action securities suits involving 50 or more parties. The bill has the support of the SEC and the White House.

At press time, the House Commerce Committee had held what was expected to be its last hearing on uniform standards legislation and, according to congressional sources, hopes to approve the bill this summer. The House bill, HR 1689, The Securities Litigation Uniform Standards Act of 1997, has 228 co-sponsors.

Securities class actions were brought almost exclusively in Federal court under Federal law before the 1995 reform act. Since then, the number of state court claims has increased dramatically. In 1996, for example, more than 25% of all cases filed were brought in state courts.

By going to state court, securities lawyers evade the policies Congress established in the reform act. One of the act's most important provisions was a "safe harbor" for forward-looking statements to encourage companies to make voluntary disclosures to enable investors to make better investment decisions. As 181 high-tech CEOs wrote in a letter to congressional leaders, however, the threat of state-law securities class actions is chilling disclosure.

Most importantly, investor protections are evaded. The Federal reforms restrict the use of "professional plaintiffs," eliminate bounty payments, set reasonable limits on attorneys' fees, and assure class members adequate notice of settlement terms, among other protections. None of these reforms apply to state law cases. *