Securities Litigation Reform `Qualified Failure'
Steve Bailey and Steven Syre The Boston Globe, THE JOURNAL RECORD
Smaller companies across America thought the world had become a slightly better place in the last days of 1995, when legislation limiting lawsuits by shareholders went into effect.
The act was known by a cumbersome phrase "securities litigation reform." Executives of public high-tech firms in particular had been howling for more protection against what they saw as an explosion of expensive and time-consuming class-action lawyers. They seemed to get what they wanted.
But for better or worse, it is clear today that the expected reduction in class-action suits by shareholders never happened. "Reform is a qualified failure," said Jeffrey Rudman of Hale & Dorr in Boston, who often defends companies, their officers, or others in shareholder suits. "The world is not really better in terms of frequency of litigation," he said. Just ask executives at Peritus Software, a Billerica, Mass., software company hit with shareholder suits this month after reporting disappointing results. Or Shiva Corp., a Bedford, Mass., technology company that also finds itself on the defendant's side of a shareholder suit. Pegasystems of Cambridge, Mass., Cabletron Systems of Rochester, N.H., FTP Software of Andover, Mass., and SystemSoft of Natick, Mass. are all in similar situations. They are among at least 17 area companies that have been sued by shareholders since reform took place. There were 350 companies sued in federal courts nationwide between the effective date of litigation reform, Dec. 22, 1995, and April 17, according to data compiled by the Securities Class Action Clearinghouse maintained by the Stanford University School of Law. That works out to an average annualized rate of about 150 companies sued per year, only a little less than the average of 177 a year from 1991 to 1995. If anything, the more recent national pace appears to be accelerating. …