More Progress Vs. the Plaintiffs' Bar

Even for the deep-pocketed U.S. Chamber of Commerce, it was a lot of money. For the second half of 2006, the chamber spent a record $49.2 million on lobbying, with $17.7 million of that amount handed out by the chamber’s Institute for Legal Reform, according to the campaign fund database Political Money Line. A good part of the funds were spent on pushing the chamber’s ideas of tort reform, designed to limit shareholder lawsuits.

The bulk of the tort reform money, says institute spokesman Larry Akey, went toward “voter education” before the November elections. “This was an attempt to raise the attention level for the fairness of lawsuits in various states,” he says. The institute believes that the current securities law is skewed in favor of lawyers, who stand to reap millions in class action judgments while individual investors may get pennies on the dollar. Moreover, the simple act of filing a shareholder lawsuit automatically decreases the value of the defendant corporation by 3.5 percent. Taken together, frivolous lawsuits hurt U.S. productivity and global competitiveness, Akey says.

The anti-lawsuit fervor seems to be gaining momentum. In February, the SEC filed an unusual brief with the Supreme Court, seeking to adopt a legal standard that would make it harder for investors to sue for fraud. The case involves Tellabs, a maker of fiber optic gear in Naperville, Ill., that was forced to restate earnings after its chief executive allegedly lied about them in 2000 and 2001. The case hinges on arguments that the executive must be shown to have acted with a certain frame of mind in the fraud. Disputing an appeals court ruling, the SEC brief claimed that investors must prove there was a high likelihood that the defendant intended to break the law.

Akey says he isn’t familiar with the Tellabs case. But he adds that staff members of the Institute for Legal Reform are in regular discussion with the SEC, and that such talks have influenced the commission.