PSLRA and the Uniform Standards Act
July 11, 2002
To Members of the United States Senate:
On behalf of the U.S. Chamber of Commerce, the world's largest business federation, representing more than three million businesses and organizations of every size, sector, and region, I am writing to express our strong opposition to any further attempts (including amendments to the pending accounting standards bill or any other piece of pending legislation) to weaken or repeal the Private Securities Litigation Reform Act (the PSLRA) or the Securities Litigation Uniform Standards Act (the Uniform Standards Act).
As the Senate proceeds through consideration of the Accounting Reform bill, we would like to strongly caution against using the current accounting situation as an excuse to enact additional ill-considered attempts to undermine the PSLRA or Uniform Standards Act. These bipartisan, balanced and effective statutes have brought additional investor protections, as well as much-needed rationality to the securities litigation process.
The PSLRA was enacted to address the serious problem of frivolous and abusive securities strike suits, where suits were brought against companies whenever a company's stock price fell for any reason, alleging that securities fraud was responsible. Professional plaintiffs, who bought a few shares of many different companies' stock for the sole purpose of bringing suit, were recruited, and the boilerplate complaints were recycled time after time – sometimes the names of the companies listed as the defendant were not even changed. Unfortunately, the point of this exercise was not so much to help allegedly injured shareholders but to extract hefty attorneys' fees from companies that couldn't afford years of litigation over nuisance suits.
The result was that many cases settled with token payments for shareholders and enormous fees for lawyers that did nothing to assist real victims of securities fraud. Further, because companies were fearful of being sued whenever they missed their earnings projections, executives stopped making forward-looking statements about company plans and expectations – thus removing valuable information from the market, and reducing openness and disclosure.
A substantial, bipartisan majority of both Houses responded by enacting the PSLRA and Uniform Standards Acts. These pieces of legislation not only enacted significant investor protections, but also sought to reign in the abuse of the legal system. For example, the PSLRA gives the Securities and Exchange Commission authority to take action against those who aid and abet securities fraud, and provides that auditors who uncover illegal acts must notify the SEC if the company does not take corrective action.
The legislation also bars suits by professional plaintiffs and gives judges the authority to select the lead plaintiff who will best represent the interests of all class members, and requires plaintiffs to state some facts supporting the conclusion that the defendant acted with fraudulent intent, instead of allowing wholly unsubstantiated allegations to serve as the basis for a complaint.
The Chamber therefore strongly urges that any attempt to repeal or weaken the PSLRA or the Uniform Standards Act be rejected. The Chamber may use votes on or related to this matter in our annual "How they Voted" scorecard.
R. Bruce Josten
Executive Vice President, Government Affairs
U.S. Chamber of Commerce