Senate Panel Votes to Ease Rules on Suits in Stock Fraud
The New York Times
April 26, 2002
Senate Panel Votes to
Ease Rules on Suits in
Stock Fraud
By RICHARD A. OPPEL Jr.
WASHINGTON, April 25 - A
Senate panel approved
legislation today that would make it
easier to prosecute securities fraud
and that would extend the time limit
for bringing related civil suits,
reopening a contentious battle over
efforts to limit lawsuits against
corporations.
Reacting to document shredding at Arthur Andersen and what many lawmakers
say was widespread fraud at Enron, the Senate Judiciary Committee endorsed a
bill that would create new criminal statutes for securities fraud and the destruction
of corporate audit documents. The bill also offers additional protections to
corporate whistle-blowers and prevents executives who lose securities fraud
lawsuits from using bankruptcy to escape fraud-related verdicts and settlements.
But Republicans, led by the ranking member of the panel, Orrin Hatch of Utah,
objected strenuously to a provision that would substantially lengthen the amount
of time plaintiffs have to file lawsuits over suspected securities fraud.
Under that measure, plaintiffs could file securities fraud lawsuits within two years
of discovering the questionable conduct, instead of the one year under current law,
and within five years of the date of the conduct, instead of the current three years.
A similar provision was rejected last week by the Financial Services Committee in
the Republican-controlled House.
The proposal to extend the time limit, which has
resurfaced with Enron's many years of questionable
practices, has drawn support from trial lawyers and
opposition from business groups. The two sides have been
feuding over the issue since 1991, when the Supreme
Court established a national time limit to bring such
cases. Previously, federal courts had applied state laws,
which often gave plaintiffs more time.
The extension "would create a whole host of problems, and
we don't see a demand for it," said Joe Rubin, the director
of Congressional affairs at the United States Chamber of
Commerce. "It's a significant problem for us."
Without explicitly saying the Bush administration would
fight the extension, a White House spokeswoman, Claire
Buchan, said, "We believe the goal should not be
increased lawsuits but preventing problems through
increased accountability, strengthened disclosure and
tough enforcement." Those principles, she said, are
already encompassed in Republican-backed legislation in
Congress.
But Consumers Union said allowing more time for people
to bring securities fraud lawsuits would give "defrauded
investors a fair chance at recovering their losses."
"The current statute of limitations sets up an
unrealistically short timetable for bringing private suits,"
the consumer group said, adding that "it rewards those
who are able to conceal their fraud for a relatively short
time with immunity from private liability."
Business groups did win a round before the Senate
committee as the panel deleted a provision that would
have given state attorneys general and the Securities and
Exchange Commission new powers to bring civil
racketeering cases against corporations - a proposal
opposed by Republicans, and some Democrats.
Congress has largely embraced efforts to curb lawsuits
against corporations - highlighted by a 1995 law making
it harder to win securities fraud verdicts against
corporations.
But the Enron fallout has altered the political
environment. In February, the attorney general of
Washington, Christine O. Gregoire, told the Senate panel
that one of the state's pension funds could seek to recover
only about half of the $100 million it lost in Enron because of the statute of
limitations.
Still, it is far from clear that legislation extending the time limits can pass
Congress. In the House, Democrats on the Financial Services Committee failed in
their attempt to do so during debate on the committee's accounting and
financial-disclosure- overhaul legislation. The panel's ranking Democrat, John J.
LaFalce of New York, stripped the provision out of the alternative measure that he
offered on the House floor on Wednesday in an effort to draw more support from
his own party.
Aides to the Senate majority leader, Tom Daschle of South Dakota, who is a
co-sponsor of the Senate bill, said the legislation could be brought up in the full
Senate by June.
During debate in the judiciary panel today, Mr. Hatch said that while he was
"disgusted with everything that happened at Enron," lengthening the time limits
would "cause our markets a lot of difficulty."
In cases like Enron, he said, the measure would mean that pensioners and others
who have valid legal claims would have to wait longer for compensation because
undeserving plaintiffs would be allowed to "sit on their hands and game the
system."
Mr. Hatch's amendment to keep the time limit of one year from the date of
discovery of the fraud was defeated 11 to 7 in the committee, with one Republican,
Senator Sam Brownback of Kansas, voting with the Democrats.
"These types of cases are very complicated and intricate, and more time is needed
under the statute of limitations to build these cases, and that's why I thought
moving it to two years was appropriate," Mr. Brownback said in an interview.
The Judiciary Committee chairman, Senator Patrick J. Leahy, Democrat of
Vermont, who is a sponsor of the bill, said the complexity of Enron's problems
made it clear that plaintiffs needed more time to file suits.
Another Democrat, Richard Durbin of Illinois, said the Enron debacle indicated the
need to provide more safeguards and recourse for investors. Without it, he said,
"Frankly, you're saying this is going to be the Wild West."
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