WASHINGTON-Congress this week is expected to approve a controversial securities litigation reform bill that would limit the ability of investors to sue firms in the wireless telecommunications industry and in other high-tech sectors that fail to make good on bullish earnings and growth projections.
The House and Senate could approve the securities litigation conference report as early as tomorrow. It is unclear where President Clinton stands on the bill.
The bill has strong support from cutting-edge, high technology firms in Silicon Valley and elsewhere whose stock offerings are often subject to wide swings and, thus, tend to involve substantial risk.
As a result, these companies have been the targets of lawsuits by investors disgruntled about their performance. Trial lawyers, the bill’s supporters say, are the big beneficiaries of securities fraud lawsuits against high-tech firms.
“On behalf of America’s most successful and well-respected high-growth companies, the Conference Committee has told a handful of trial lawyers that they can no longer engage in legal extortion and make millions of dollars by falsely alleging fraudulent activity that just did not take place,” said Bill Archey, president of the American Electronics Association.
But opponents of the bill claim it gives firms a license to mislead prospective investors and prevents them from recouping their money.
The bill is sponsored in the Senate by Pete Domenici, R-Ariz., and Christopher Dodd, D-Conn., and in the House by Thomas Bliley, R-Va.
Reps. John Dingell, D-Mich., ranking minority member of the House Commerce Committee, and Edward Markey, of Massachusetts, the top Democrat on the telecommunications and finance subcommittee, claimed the securities legislation conference report was drafted in secret without input from Democrats.
Securities and Exchange Commission Chairman Arthur Levitt and fellow Commissioner Steven Wallman have come under fire by the bill’s critics for apparently softening their opposition to the measure and offering cautious support for it.
Much controversy surrounds a so-called “safe harbor” provision, which ostensibly shields from liability firms that make forward-looking projections about future growth as long as such forecasts are accompanied by cautionary statements.
“It is truly a sad day when the nation’s top securities cop endorses rules that would immunize even deliberate and willful fraud,” said Michael Calabrese, director of Public Citizen’s Congress Watch. “President Clinton has repeatedly stated his commitment to standing up for people who work hard and play by the rules. If he is serious about this commitment to honest, hard-working people, he will strike down this bill with a middle-class veto.”
Securities fraud lawsuits are nothing new to the wireless telecommunications industry.
A class action lawsuit filed by a small group of investors is pending against Nextel Communications Inc., the top specialized mobile radio operator in the United States. The suit alleges Nextel early on sold digital SMR as competitive with cellular telephone service to drive up its stock price, which subsequently dropped significantly due to technical problems, buildout delays and MCI Communications Corp.’s decision to pull its planned $1.3 billion investment in the wireless firm last year.
More recently, a federal court in Mississippi dismissed a complaint charging Mobile Telecommunication Technologies Corp. with breaking federal securities laws. Mtel’s stock fell a lot in early 1994 after announcing revenues would be lower because of a reduced pricing structure and international ventures.