Securities Litigation Conference - Welcome by Tom Donohue

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Securities Litigation Conferen
Welcoming Remarks by Tom Donohue
President and CEO, U.S. Chamber of Commerce
U.S. Chamber of Commerce

February 16, 2006

Thank you Lisa for that introduction. Good morning. I’m pleased to kick off today’s conference, which aims to take a long, hard look at how well America’s securities class action litigation system is working.

Ten years ago, Congress passed the Private Securities Litigation Reform Act (PSLRA), which eliminated many abuses in the securities litigation system.

Unfortunately, though, our members have been telling us that securities lawsuits are becoming an increasingly costly and burdensome thorn in their sides, making securities class action litigation a primary focus of the Chamber and the Institute for Legal Reform in the past year.

What really caught our attention though—and what I think would startle most people—is the incredible amount of money these cases are settling for. Since 2001, settlements have totaled in the billions of dollars and are increasing in size at an alarming rate.

I refer to settlements because very few, if any, of these cases actually go to trial. Companies feel coerced into settling due to the sheer dollar values of the claims against them and because they want to avoid the accompanying bad publicity of a trial, which would further damage stock values and in turn, generate more losses for their shareholders. For most of these businesses, it’s a no-win situation.

So what are we doing about it? Well first off, we’re investing in research conducted by the foremost experts in the field.

Last fall, we commissioned a study and research paper on the economics of securities class actions and their unintended consequences, the results of which are very interesting. This information is in your materials, but let me cover the highlights for you:

One of the most disconcerting findings is that small individual investors don’t fare very well under the system. We also learned that the mere filing of a securities class action suit leads to an immediate 3.5 percent decrease in a company’s stock value.

The impact of securities litigation extends well beyond investors and defendant companies. To shore up their stock price, many companies have to implement cost cutting measures and forgo capital investment.

Consider the cumulative effect of hundreds of defendant companies each year ratcheting down capital investment to compensate for losses: the result can be a significant blow to our national economy.

What’s more, our study found that plaintiffs’ lawyers make out very well financially in these settlements. This money, in turn, is used to finance additional suits.

For the plaintiffs’ bar, shareholder class actions are a cash cow the likes of which you can’t begin to imagine.

For example, our study showed that between December 1995 and August 2005, Milberg Weiss alone helped generate $1.7 billion in legal fees and expenses as lead or co-lead counsel in 43 percent of the 755 securities class actions that we looked at.

Clearly, these numbers got our attention, and we began to wonder whether these cases were warranted, particularly in light of the enhanced enforcement environment that has come about in recent years and the potentially harmful effect these cases could have on the economy.

Skeptics will likely say that we just want to make it harder for plaintiffs to file shareholder suits. Really what we would like to see is a system that works to the maximum benefit of shareholders, especially small individual investors, without doing unwarranted harm to companies and the U.S. economy.

To get the discussion underway, it’s now my pleasure to introduce Senator Chris Dodd from Connecticut. Now in his fifth term in office, he has built a reputation as a bipartisan leader in the Senate.

Senator Dodd has been a champion for legal reform legislation. He was a key ally in the five-year fight to pass the Class Action Fairness Act, and the entire Chamber federation is grateful for his commitment to that much-needed legislation.

In sum, he’s the “go-to” guy whenever you want to get something done in the Senate.  

The reason we have invited Senator Dodd to join us today is because he was the chief Democratic architect of the Private Securities Litigation Reform Act, which became law over a presidential veto. Indeed he led the effort to override President Clinton’s veto while he was chair of the Democratic Party. 

We have asked him to share his insights on that critical piece of legislation and his thoughts on the current private securities litigation environment.

Please join me in welcoming Senator Chris Dodd.