SEC Begins Hearings on Securities Litigation Reform

Article excerpt

WASHINGTON (AP) _ The Securities and Exchange Commission began hearings Monday on a tricky problem affecting many businesses: how to expand protections so executives can make meaningful predictions about business without fear of getting sued if they're wrong.

Leading securities attorneys, investors, academics and other officials, including Labor Secretary Robert Reich, are proposing solutions this week at two days of hearings in Washington and one day in San Francisco.

Sarah Ball Teslik, executive director of the Council for Institutional Investors, offered harsh criticism of the existing protections for forward-looking statements, known in securities jargon as a "safe harbor."

Teslik said information companies now provide is "so regulated, standardized and litigation-averse that it becomes too stale and limited to be useful." Teslik represents pension funds with $800 billion in assets, or about 40 percent of the market.

"It is an ugly truth increasingly acknowledged that Americans who invest based only on information contained in the required filings are nuts," she said.

Executives are making predictions, but selectively, to a group of large shareholders, favored securities analysts and others.

"This is precisely the kind of system the commission was established to prevent," she said.

By tackling the issue, the SEC is wading further into a debate over securities litigation reform, which centers on business interests to limit shareholder lawsuits alleging securities fraud.

On one hand, the agency wants to encourage publicly traded companies to provide a continuous stream of information about themselves so investors can make informed choices.

The agency also wants that information to be accurate and not used in such a way to defraud investors. …