AICPA chairman testifies before Senate subcommittee.

Jake Netterville, chairman of the American Institute of CPAs board of directors, told the Securities Subcommittee of the Senate Banking, Housing and Urban Affairs Committee, "The current securities litigation system is broken, pure and simple. The evidence is compelling and no longer can be ignored."

He stressed that the accounting profession did not "wish to shield knowing perpetrators of fraud from any liability to which the present system exposes them." However, he said the current system pressures defendants to settle claims simply to avoid the cost of further litigation. To back his assertion, he inserted into the record an analysis of data supplied at a previous hearing by a plaintiffs attorney. In 20 settlements mentioned by that attorney, the analysis showed the average shareholder received only $.14 on the dollar of damages claimed. Netterville also cited a University of California study of 550 companies that showed corporate managers were extremely reluctant to disclose information, either good or bad, that would surprise market analysts because of the litigation threat.

Netterville said the legislative remedy should be guided by four principles. The reforms should (1) facilitate the disclosure of useful financial information and the auditing of such disclosures, (2) increase incentives for those who are truly defrauded to obtain the compensation they deserve, (3) increase incentives for innocent victims to go to trial to vindicate themselves and (4) deter manipulation of the judicial system by overreaching attorneys pursuing meritless cases.