Securities Litigation Reform Bill Is Now Law

Journal of Accountancy, February 1996 | Go to article overview

Securities Litigation Reform Bill Is Now Law


The House voted 319-100 and the Senate voted 68-30 to override President Bill Clinton's veto of a bill that will reduce the number of frivolous class action securities lawsuits. The Private Securities Litigation Reform Act of 1995 was drafted to reshape securities laws that professional investors and some class-action lawyers have used against corporations, accountants and securities underwriters to win billions of dollars in damages.

The president unexpectedly vetoed the bill after signaling earlier that he might sign it. Only days before the veto the president was seeking reassurance that the Securities and Exchange Commission would take administrative measures to protect the interests of small investors, according to White House aides. SEC chairman Arthur Levitt endorsed a safe harbor provision to shield companies from the legal liability for incorrect predictions.

American Institute of CPAs key persons, state CPA societies and national CPA firms urged members of Congress to support the reforms in the bill. "The passage of the securities legislation is a tremendous victory for both business and the CPA profession," said Barry C. Melancon, AICPA president. "The AICPA key persons program and the Accountants Coalition, a coalition of national CPA firms, deserve tremendous credit for the effort and support given to achieve this goal."

Perhaps the bill's strongest supporter in Congress, Senator Christopher J. Dodd (D-Conn.), urged both House and Senate Democrats to override Clinton's veto, even if it amounted to a defeat of the intent of his own party's president. In his veto message, Clinton said his main concern was that the bill's pleading requirements, which require the plaintiff to show that a defendant had the intent to defraud someone, imposed an "unacceptable procedural hurdle" to many worthy lawsuits.

Who benefits?

"This law will have major implications for accounting and underwriting firms and public companies, which typically are the first to be sued," said William Ezzell, chairman of the Accountants Coalition and partner of Deloitte Touche in Washington, D.C. "The law encourages the dissemination of forward-looking information to the marketplace in an appropriate, cautionary fashion. This cautionary language removes some of the burden of frivolous lawsuits from companies and, in turn, from ancillary players such as accountants and investment bankers."

Here are some of the law's provisions that will have a direct impact on the accounting profession.

Proportionate liability

The new law implements a system of proportionate liability in which peripheral defendants pay only their "fair share" of a judgment. Less culpable defendants will pay a proportionate share of the damages, but parties that knowingly engage in fraud still are subject to the full force of joint and several liability. Proponents of the bill had argued that joint and several liability in the previous law rewarded plaintiffs' lawyers who targeted "deep pocket" defendants.

"The most significant part of this bill for the accounting profession is its system of proportionate liability," said John E. Hunnicutt, AICPA senior vice president--public affairs. "It is what the profession has fought for from start to finish."

"The proportionate liability provision in this law is a very positive step," said Ezzell. He said under the new law, a defendant who is found, only to have acted recklessly, but who did not knowingly commit fraud, would be responsible for only a proportionate amount of the damages.

All defendants remain jointly and severally liable to investors with a net worth under $200,000 who lose more than 10% of their net worth. Defendants liable for their proportionate share are also liable for up to an additional 50% of their share to help pay for insolvent co-defendants.

Safe harbor for prediction

The law encourages voluntary disclosure of forward-looking information to investors by establishing a carefully designed safe harbor. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Securities Litigation Reform Bill Is Now Law
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.