U.S. Chamber Says Overturning Stoneridge Case Will Harm Investors, Job Creation & Economic Recovery
Statement of Lisa A. Rickard, president of the U.S. Chamber Institute for Legal Reform, on S. 1551, legislation introduced yesterday to overturn the U.S. Supreme Court’s decision in Stoneridge Investment Partners v. Scientific-Atlanta, Inc., which halted the expansion of securities liability cases through the theory of “scheme liability:”
“There is no question we need strict government enforcement and punishment for those who commit fraud, but greatly expanding private securities class action lawsuits will only slow our economic recovery, drag down investors’ portfolios and retirement accounts, and delay the creation of much needed new jobs. This legislation, which would overturn the Supreme Court precedent in the Stoneridge case, will benefit securities class action plaintiffs’ lawyers at the expense of average investors and workers.
“Private securities class actions do not deter fraud. The best way to punish executives and companies that commit fraud is not by undercutting Supreme Court rulings and encouraging more private lawsuits, but through tougher enforcement of existing civil and criminal laws.
“Additionally, class action lawsuits have proven ineffective for compensating injured investors. Numerous studies have shown that settlements in securities lawsuits merely shift money from one innocent investor to another—allowing injured investors to recover pennies on the dollar while nearly half the settlement is siphoned off in transactional costs such as legal fees.
“Not only are private actions ineffective, the current system is rife with examples of abuse and corruption. This includes possible ‘pay-to-play’ conflicts between plaintiffs’ law firms hoping to receive lucrative contingency fee contracts from public pension funds and the public officials overseeing those funds. Also, four of the top securities class action lawyers of the last decade, including Bill Lerach and Mel Weiss, are currently serving time in prison for paying kickbacks to plaintiffs in approximately 165 lawsuits that resulted in more than $250 million in legal fees.
“The fact is, securities class action lawsuits continue to be filed as a result of the financial crisis, proving that the courthouse doors are open to shareholders seeking redress for their losses. We encourage Congress to reject S. 1551. Instead, Congress should support and fund the effective enforcement of existing laws because expanding the current lawsuit system will ultimately impose excessive costs on innocent shareholders while producing too little for injured investors.”
ILR seeks to promote civil justice reform through legislative, political, judicial, and educational activities at the national, state, and local levels. The U.S. Chamber of Commerce is the world’s largest business federation, representing more than 3 million businesses and organizations of every size, sector, and region.