The House of Representatives passed legislation to reform the private securities litigation system with an overwhelmingly bipartisan vote of 325-99. The approval of the Securities Litigation Reform Act (HR 1058) followed a vigorous lobbying campaign by the accounting profession, high-tech industries, the-securities industry and business leaders who said the current legal system promoted incentives for lawyers to pursue meritless cases against "deep pocket" companies. The American Institute of CPAs considers the passage of HR 1058 a significant victory for the profession.
The large margin of victory for HR 1058 exceeds the votes necessary to override a presidential veto. The White House has echoed Securities and Exchange Commission concerns that certain provisions in the House bill were unfair but has stopped short of announcing official opposition.
A major provision of HR 1058 reduces the liability exposure for companies of all sizes by establishing a system of proportionate liability in which defendants are responsible for the share of damages caused by their own actions. The joint and several liability system currently in use has been the bane of accounting firms exposed to a substantial amount of liability as peripheral defendants.
C. Christopher Cox (R-Cal.), architect of the House bill, said the current system of private securities litigation had to be changed. "It cheats both the victims of fraud and innocent parties by lavishly encouraging meritless cases," said Cox. "It has destroyed thousands of jobs and has undercut economic growth and American competitiveness." Another provision of HR 1058 establishes a safe harbor for forward-looking statements to encourage the voluntary disclosure of information to investors. At hearings before the SEC last February, Philip B. Chenok, president of the AICPA, said current safe harbor provisions were not effective. Chenok urged the SEC to support "meaningful reform" in Congress (see JofA, Apr.95, page 11).
W. J. (Billy) Tauzin (D-La.), who has championed litigation reform legislation in the House for four years, said, "The threat of lawsuits over forward-looking information is so serious that many if not most chief executive officers refuse to talk about their company's performance, yet that is exactly the kind of information the market needs to operate. …