US Chamber of Commerce Think Tank Proposes Securities Class Action Reforms

Private securities class actions present a "serious threat to the health of the U.S. economy" according to the Institute for Legal Reform (ILR). The costs of securities litigation are enormous, but the benefits are miniscule. The culture of abusive class actions, driven by a multibillion dollar plaintiffs’ lawyer industry, is eroding the competitiveness of U.S. capital markets at a time when they face perhaps their greatest threat from foreign competition. In "Securities Class Action Litigation: The Problem, Its Impact, and The Path to Reform" ILR concludes that "the system is broken, and Congress must enact the reforms needed to fix it."

Suggested legislative reforms include:

• Enacting the “Securities Litigation Attorney Accountability and Transparency Act,” (S.3033, H.R. 5463) because it would cast sunlight onto the relationships between attorneys and plaintiffs, eliminate pay-to-play conflicts and other suspicious connections between attorneys and elected officials, introduce a competitive bidding process for the selection of lead counsel, and call for further investigation into the hourly fees paid to plaintiffs’ attorneys in securities class action litigation.
• Ensuring coordination between public and private enforcement in order to promote efficient compensation and prevent wasteful, duplicative recovery by shareholders.
• Providing defendants equal access to appeal denials of motions to dismiss a suit in order to reduce the intense pressure to settle meritless suits following the denial of such dispositive motions.
• Curbing abuse of civil discovery, the costs of which fall disproportionately on defendant companies and create enormous pressure to settle, by shifting the cost of discovery from defendants to plaintiffs when discovery requests are unjustified.

[RJ]