Congress focuses on changes in securities laws.

• Author: Dotson, Betsy

Charging that existing securities laws and regulatory activities have hampered the ability of U.S. corporations to attract capital and therefore compete globally, the 104th Congress has embarked on a mission that threatens state and local government and other funds. In an attempt to dilute the protections and remedies that now exist to cushion public funds from the misdeeds of those with whom public investors deal, including pension fund managers, Congress is focusing on three key efforts that will reduce these protections for state and local governments and their taxpayers - securities litigation reform, deregulation and preemption of state securities laws, and a revamped Securities and Exchange Commission (SEC).

Securities Litigation Reform

Reform of the manner in which securities fraud suits are brought has been discussed for several years, with most market participants in agreement that some adjustments are needed. In the last Congress, securities litigation bills were introduced to deal with what some view as an excess of frivolous lawsuits, particularly class action suits. Encouraged by the accounting profession, high technology firms, and Wall Street, drafters of the "Contract With America" included in their list of priorities for the 104th Congress securities litigation reform which is designed to limit the ability of investors to file lawsuits and seek recovery for fraud. Securities litigation bills have passed both houses of Congress and now go to a conference committee to resolve the differences between them. The overall flaw of these bills is that each lacks balance in securing the rights of investors while modifying the litigation system. Both bills would have the following results for state and local governments:

* Victims of fraud would face the risk of having to pay the defendant's legal fees if they lose. Losing defendants, however, would not be subject to the same presumption of payment of plaintiff's legal fees. This provision will strongly discourage the filing of even the most meritorious claim.

* Victims would find it exceedingly difficult to fully recover their losses because of continued immunity from liability for those who "aid and abet" fraud (those who assist the primary wrongdoer) and changes in the "joint and several liability" standard, which enables investors to recover from those who helped engineer a fraud, even if the primary wrongdoer is bankrupt. Aiders and abettors could not be added as defendants...