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Litigation reform bills introduced; drive for passage builds.

Washington Update


With the strong backing of over 300 organizations, including the American Institute of CPAs, securities litigation reform legislation was introduced in the House and Senate. Although not passed before Congress adjourned, the legislation will be reintroduced next year.

The Securities Private Enforce - Senator Pete Domenici and Congressman "Billy" Tauzin the bipartisan sponsors of the bills. ment Act (S 3181 and HR 5828) would require judgments against codefendants to be based on their proportionate contributions to claimed losses rather than on their ability to pay most or all of the entire judgments. Plaintiffs and attorneys would pay defendants' legal fees if their allegations are deemed meritless, under certain circumstances.

This, sponsors say, would eliminate abusive, meritless litigation associated with securities fraud.

"There is something wrong when accountants are paying more in legal fees than any other expense except salaries," said Senator Pete Domenici (R-N. M. ) who introduced the bipartisan bill with Senator Terry Sanford (D-N.C.).

"There is something wrong when real victims of fraud receive as little as five cents for every dollar of the loss and the lawyers receive the lion's share of any settlement," Domenici added.

"Defendants must be given incentives to fight unjustified claims and settle only meritorious ones," said Congressman W.J. "Billy" Tauzin (D-La.), who cosponsored the House version along with Congressmen Ralph Hall (D-Tex.), Norman Lent (R-N.Y.), Don Ritter (R-Pa.), Dan Burton (R-N.J.), Clay Shaw (R-Fla.), Dan Glickman (DKan.), Alex McMillan (R-N.C.), Andrew Jacobs (D-Ind.) and G.V. (Sonny) Montgomery (D-Miss.).

AICPA support. Securities litigation reform is strongly supported by independent auditors, investment bankers and others often named as codefendants. "Proportionality is especially welcomed by the accounting profession and others who are sued only because they are deep pockets," commented Philip B. Chenok, American Institute of CPAs president. "The current doctrine of joint and several liability must be replaced if accountants are to continue performing audits in high-risk situations such as initial public offerings."

Robert D. Neary, chairman of the executive committee of the AICPA division for CPA firms SEC practice section, called the bills "a major step in the profession's liability reform program" in a letter sent to managing partners of SECPS member firms.

While he had not expected the bills to pass in the short time remaining before adjournment, N eary said, "We want to gain as many cosponsors as possible to build momentum going into next year."

Jerrell A. Atkinson, chairman of the private companies practice executive committee of the AICPA division for CPA firms, sent a similar letter to managing partners of private companies practice section member firms, saying "the AICPA leadership has strongly advocated teh passage of securities litigation reforms and urges your support of this legislation."

Atkinson said although the legislation concerns litigation filed under the federal securities laws, the reforms it introduces to the federal statutes "also should enhance the accounting profession's future ability to achieve similar reforms with respect to other litigaiton against accounting firms."

The legislation resulted, in part from the efforts of the Coalition to Eliminate Abuse Securities Suits (CEASS), which is made up of business and professional organizations, including the AICPA (see "Coalition Urges Litigation Reform," JofA, Aug. '92 page 17) CEASS termed the proposed legislation "a significant step on the road to restoring fairness to the American judicial system."

Hearings on the bills are expected to be held in the House and Senate in early 1993.
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Title Annotation:includes summary of reform bills; securities litigation reform
Publication:Journal of Accountancy
Date:Nov 1, 1992
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