WHO BENEFITS UNDER THE REPUBLICAN's LAW--the Crooks or shareholders?
While Rick's post is another on his recent chain of not-on-point posts, it does give me a chance to once again rant about how the shareholders and those of us little-guy stock traders were screwed over when the fraud artists bought immunity from stock fraud suits by their massive contributions to the GOP congressional candidates. Despite whatever other flaws you may think Clinton has, and despite his reasons, Clinton, to his credit vetoed this law.
My comments about this speech, follow:
<<Securities Litigation Reform did four significant things to curtail strike suits>>
The legislation may have curtailed strike suits, but, as I will show, from this very abbreviated and propagandized description of the 1995 law, it also made it impossible for valid class actions to be brought in federal court by small investors.
<< (1) It established a pleading standard that requires that plaintiffs' lawyers plead facts showing a strong inference of fraud in order to get into court. In lay man's terms, the change required that plaintiffs' lawyers actually allege some fact indicating that a fraud has been committed;>>
The pleading standard requires an innocent buyer or seller of stocks to plead facts that prove the defendants had the equivalent of a "guilty mind" and an intention to cheat the plaintiffs. The existing law before the act said it was enough to prove merely that the statements issued by the defendants was false or misleading. Moreover, in almost every other kind of litigation, if there is evidence from which an inference of fraud or wrongdoing could be inferred, the injured party is allowed to plead what that evidence is and to then look at the defendant's records and to take depositions to fill in the details and to learn exactly what happened.
Think about it for a minute. A person buys stock based on a press release that turns out to be false, and when the truth is disclosed, the price of the stock drops like a stone. Should not the buyer of the stock be allowed to prove that between himself and the issuer of the press release, if a loss was suffered, he should not be the one to suffer the loss?
In the 1995 law, the buyer would not be able to sustain his Complaint in court unless he could plead the specific details of a campaign to defraud him. How would he ever know the details, though, before he had a chance to examine the records and take testimony. The consequence of this new standard is that it presumes every injured shareholder is a crook who is trying to shake down the company--and it presumes every public company is run by honest, paragons of society.
Who is the beneficiary of this new burden on the shareholders? The companies that engage in fraud, of course. Who contributed to the campaigns of the Republican congress-people?
<< (2) Litigation reform established a stay of discovery. This provision
was designed to allow a judge to consider whether a case should be allowed to go forward before allowing a trial lawyer to demand literally millions of pages of documents from a faultless defendant. Often, under the old system, defendants would find it cheaper to settle merit less claims than produce the millions of pages of documents; >>
This of course means that a judge must a ruling on the merits before the plaintiff is ever allowed to get the proof and the details of the alleged wrongdoing. This is a totally unwarranted measure. Moreover it is utter bull to argue that millions of pages were routinely demanded from the company. What happens in real life (not in a politician's version of real life), a plaintiff requests information about the apparent fraud. The defendant says, we have a million pages of documents in our filing system, some of which may answer your questions. The plaintiff then , at his sole cost, must go to the defendant's premises and wade through the junk to try to find the few pages that answer his questions. He then arranges for the copying at HIS cost. The burden on the defendant is slight and the entire cost of reviewing the documents and copying them is on the plaintiff.
As noted above, for the past 50 years the trial system in America allowed the plaintiff, in virtually every kind of case, to look for evidence to explain why he was injured and to prove his claim if he had a reason to suspect that there was wrong doing. Only in the securities fraud area do we now find a pro-defendant law that virtually shields them from the consequences of their wrongdoing. Moreover, judges now have a license to dismiss every case, regardless of the probability that discovery will uncover evidence of stock fraud.
Who is the beneficiary of this new burden on the shareholders? The companies that engage in fraud, of course. Who contributed to the campaigns of the Republican congress-people?
<<(3) It established proportionate liability for non-knowing fraud, so that
accountants, securities personal and other professionals would not be targeted as deep pockets and be faced with theoretical liability of tens of millions of dollars; >>
This means that if the CPA firm certified the fraudulent statements as true, they are now given virtual immunity. Under the pre-1995 law cases, accountants were held liable, and of course this is why you often saw Big 8 accounting firms resigning from the role of auditor to dishonest companies. Under the new law, the accountants can keep their clients.
This means also that accountants and lawyers (who if they are paid by the company, are thus being paid by the shareholders, but who obviously work for the benefit and protection of the executives in the company who hired them) have a reason not to ask questions and to thus avoid "knowing fraud".
Under the pre-1995 litigation standards, accountants who were paid by the shareholders had a duty to ask the questions needed to benefit the shareholders and others who might rely on their financial reports and audits.
Who is the beneficiary of this new burden on the shareholders? The companies that engage in fraud, of course. Who contributed to the campaigns of the Republican congress-people?
<< (4) It established a safe harbor for forward-looking statements so that companies will be willing to share their prospects with investors in the markets without fear of liability. >>
This means if the canned language of a meaningless, Surgeon General type of disclaimer is parroted at the end of a press release or other statement issued by a company, no shareholder can rely on the truth of what is said in the press release, even if it was a rank lie. Since every press release from every company now has safe harbor language in it, obviously, this has become like a magician's magic words. Say its "safe harbor" and the 1995 law will make the lie in the statement immune.
Who is the beneficiary of this new burden on the shareholders? The companies that engage in fraud, of course. Who contributed to the campaigns of the Republican congress-people?
The speech that Rick posted does not even discuss why and how the 1995 law eliminated the ability of the small shareholder to bring a class action against the most corrupt company.
Who is the beneficiary of this new burden on the shareholders? The companies that engage in fraud, of course. Who contributed to the campaigns of the Republican congress-people? |
