NEW YORK (Legal Newsline)-Private securities lawsuits pose a significant threat to the U.S. economy, a report issued by the U.S. Chamber Institute for Legal Reform says.
Speaking to attendees at a forum hosted by conservative think tank The Manhattan Institute, Lisa Rickard, president of the Institute for Legal Reform, called for an overhaul to the nation’s securities class action system.
The current system, she said, pits one group of “innocent investors” against another group of innocent investors, and in the end wronged investors often receive only pennies on the dollar, while law firms rake in huge sums of money in legal costs.
“Driven by the multibillion dollar plaintiffs’ lawyer industry, the system exacts enormous costs on our economy while betraying the individual investors it is designed to assist,” Rickard said.
Citing a previously issued Institute for Legal Reform report, Rickard said securities class action litigation has destroyed nearly $25 billion of shareholder wealth between 1995 and 2005.
She called on federal lawmakers to investigate “the culture of greed and corruption prevalent in the securities trial bar,” and enact “common sense” reforms.
“While the U.S. House and Senate leadership has been eager to conduct oversight hearings into the perceived abuses of other industries, Congress has been silent on this issue,” Rickard said.
“Common sense reform measures should, and must, be enacted by Congress to repair the broken securities class action system if we are to keep our nation on a prosperous and competitive course,” she added.
The ILR report Rickard cited calls for, among other things, the enactment of the Securities Litigation Attorney Accountability and Transparency Act, introduced by U.S. Sen. John Cornyn, R-Texas, and Rep. Jeb Hensarling, R-Texas.
The legislation would introduce a competitive bidding process for the selection of lead counsel and call for further investigation into the hourly fees paid to plaintiffs’ attorneys in securities class action litigation.
Proponents of the bill often point to the criminal case of former famed securities attorney Melvyn Weiss, who made a lucrative practice out of suing corporations on behalf of shareholders.
He was recently sentenced to 30 months in federal prison and ordered forfeit $9.7 million in earnings and pay $250,000 in fines.
Prosecutors say the firm Weiss founded — Milberg Weiss, LLP — raked in $251 million in fees from cases in which the firm’s lawyers illegally paid kickbacks clients to file lawsuits claiming they suffered a loss because corporate executives misled them about a company’s financial condition.
Among corporations targeted were AT&T Inc., Lucent, WorldCom, Microsoft Corp. and Prudential Insurance.
Weiss’ former partner Bill Lerach was sentenced to 2 years in prison last year after pleading guilty to one count of conspiracy.
The kickback scheme lasted for more than 25 years and “had a severely detrimental effect on the administration of justice across the nation as lies were routinely made to judges overseeing significant cases,” said U.S. Attorney Thomas O’Brien in a statement announcing Weiss’ plea agreement.
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