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LIABILITY SYSTEM THREATENS INDEPENDENT AUDITS; U.S. CAPITAL MARKETS AND GLOBAL COMPETITIVENESS AT RISK; TORT REFORM NEEDED NOW

LIABILITY SYSTEM THREATENS INDEPENDENT AUDITS; U.S. CAPITAL MARKETS AND
 GLOBAL COMPETITIVENESS AT RISK; TORT REFORM NEEDED NOW
 NEW YORK, Aug. 31 /PRNewswire/ -- Charging that "the tort liability system in the United States is out of control," the six largest accounting firms have launched a coordinated federal and state effort to achieve liability reform. These six aggressive competitors consider the situation so serious that they have pledged to work together to find solutions.
 "The liability system today is no longer a balanced one that provides reasonable compensation to victims by the responsible parties," assert the leaders of Arthur Andersen, Deloitte & Touche, Coopers & Lybrand, Ernst & Young, KPMG Peat Marwick and Price Waterhouse, in a joint position statement being distributed to partners and clients. "Instead, it is primarily a risk transfer scheme in which marginally culpable and even innocent defendants too often must agree to coerced settlements in order to avoid the threat of even higher liability, pay judgments totally out of proportion to their degree of fault, and incur substantial legal expenses to defend against unwarranted lawsuits. A liability system seriously lacking in logic, fairness and balance is not just the accounting profession's crisis. It is a business crisis and a national crisis."
 The statement estimates that the accounting profession as a whole faces about 4,000 lawsuits and $30 billion in claims. In 1991, the six largest firms, all of which are general partnerships, spent $477 million on litigation -- 9 percent of their domestic auditing and accounting revenues and an 18 percent increase over 1990 litigation costs. A recent survey by the American Institute of Certified Public Accountants (AICPA) indicates that claims against firms other than the six largest rose by two-thirds between 1987 and 1991. And 40 percent of the firms surveyed are "going bare" because liability insurance is too expensive. According to other recent surveys, a growing number of firms, including the six largest, are avoiding "high-risk" audit clients and even whole industries. Some smaller firms are dropping public clients, or abandoning their auditing practices altogether.
 The principal cause of unwarranted litigation against the profession is "joint and several liability," which makes each party to a lawsuit potentially liable for 100 percent of the claimed damages, no matter how limited their role. Joint and several liability exposes marginally culpable and even blameless parties to litigation for no other reason than their "deep pockets." The six firms are calling for the replacement of joint and several liability with proportionate liability, under which the damages assessed against each defendant are based on that defendant's degree of fault. This is not only a matter of fairness, but is a necessary step to discourage coerced settlements and encourage "deep pocket" defendants to fight unwarranted litigation in the courts.
 An important first step toward effective liability reform that will benefit both business and the profession was taken earlier this month with the introduction of bipartisan bills in both Houses of Congress (S. 3181 and H.R. 5828) to curb abusive securities fraud suits under SEC Rule 10b-5. Hundreds of these suits are being filed against companies whose only crime is a fluctuation in stock price, with the sole purpose of coercing settlements. Joint and several liability encourages the inclusion of auditors and other "deep pocket" defendants in these suits to increase the size and prospect of settlements. Mid-size, high technology and high growth companies new to the capital markets are particularly vulnerable to abusive Rule 10b-5 suits because their stock prices tend to be volatile. These companies currently provide the bulk of innovation and new job growth in the United States and are thus crucial to the country's economic competitiveness.
 The six largest firms and the AICPA have joined a growing coalition of concerned professional organizations, businesses, and industry and trade associations in working for enactment of this legislation. In addition to proportionate liability, the bills include a requirement that plaintiffs pay a prevailing defendant's legal fees if the court determines a suit is meritless. If successful, the 10b-5 effort will ease -- although certainly not solve -- the profession's liability problem and serve as an important precedent for further reforms at the federal and state levels.
 "The flaws in the liability system are taking a severe toll on the accounting profession. If these flaws are not corrected and the tort system continues on its present inequitable course, the consequences could prove fatal to firms of all sizes," predict the leaders of the six firms. The firms intend to explore all realistic means of combating the litigation epidemic. Their joint statement emphasizes that in seeking reforms, the firms are not attempting to avoid liability where they are culpable. Rather, they are seeking equitable treatment that will permit them and the accounting profession to continue to meet their public obligations and make an important contribution to the U.S. economy.
 -0- 8/31/92
 /CONTACT: Jack Ruane of Arthur Andersen, 312-507-3395; David L. Nestor of Coopers & Lybrand, 212-536-2965; Al Leach of Deloitte & Touche, 203-761-3160; Mort Meyerson of Ernst & Young, 212-773-6116; Barbara A. Kraft of KPMG Peat Marwick, 212-909-5266; or Peter Horowitz of Price Waterhouse, 212-930-5225/ CO: Price Waterhouse ST: New York IN: FIN SU:


CK-OS -- NY031 -- 4981 08/31/92 13:00 EDT
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Date:Aug 31, 1992
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