Letter Opposing Amendment SA 3776, Offered by Senator Specter to S. 3217, the "Restoring American Financial Stability Act of 2010"

May 13, 2010

TO THE MEMBERS OF THE UNITED STATES SENATE:

The U.S. Chamber of Commerce, the world's largest business federation representing the interests of more than three million businesses and organizations of every size, sector, and region, strongly opposes amendment SA 3776, offered by Senator Specter to S. 3217, the "Restoring American Financial Stability Act of 2010 (RAFSA)," which would overturn the Supreme Court's decisions in Stoneridge v. Scientific-Atlanta, 128 S. Ct. 761 (2008), and Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A. This amendment would significantly and unnecessarily expand private securities litigation.

The Supreme Court in Stoneridge v. Scientific-Atlanta, 128 S. Ct. 761 (2008), refused to create an entirely new category of private securities class actions based on "scheme liability"—a theory of liability that, if adopted, would have had dire consequences for investors and the economy. This amendment would permit plaintiffs' securities lawyers to file class action lawsuits against third parties who are alleged to have "aided and abetted" someone else's violation of the securities laws. If enacted, such a provision would invite plaintiffs' lawyers to ensnare in litigation nearly any business that had a commercial relationship with another company alleged to have engaged in fraud.

This amendment would inappropriately inject the securities laws "into a wide range of ordinary commercial transactions." Under the amendment, plaintiffs' lawyers could bring a securities class action against any business that enters into any sort of transaction with a public company as long as the complaint alleges that the transaction constituted "substantial assistance" of a public company's own allegedly deceptive statements (i.e., the standard for aiding and abetting) and that the business had knowledge of the allegedly improper conduct at issue (even if that business did not know that the conduct was improper). If enacted, all sorts of businesses, large and small, would face an entirely new and extensive set of legal claims.

Because securities class actions tend to seek massive damage awards, many companies — even those bearing no culpability whatsoever — feel compelled to settle as opposed to going to trial and running the risk of losing a "bet the company" case. Complex yet legitimate transactions can become, in hindsight, easy to pick apart and labeled as deceptive. This theory of liability, accordingly, is, as The Wall Street Journal described it, "the tort equivalent of guilt-byassociation"—creating an "implied cause of action [that] would reach the whole marketplace in which the issuing company does business."

The Chamber urges you to oppose Specter amendment SA 3776. The Chamber will consider votes on, or in relation to, this amendment in our annual How They Voted scorecard.

Sincerely,

R. Bruce Josten