The head of the Securities and Exchange Commission on Friday called for curbs on civil lawsuits in securities cases and said the powerful federal racketeering law should not be used to put more pressure on defendants in such cases.
“There seems to be litigation over every conceivable item.... The pendulum has swung too far in the direction of litigation,” Richard C. Breeden told an educational forum sponsored by the Practising Law Institute.
Breeden is the latest official to jump on the Administration’s “too many lawsuits” bandwagon. Last week Bush said the legal system had “spun out of control.” He ordered government lawyers to obey a host of new rules aimed at curbing their instinct to litigate.
In August, Vice President Dan Quayle made headlines when he told the American Bar Association that there are too many lawyers and they are partially to blame for U.S. economic woes.
Their comments are tied to the Administration’s push for civil law reform, which includes proposals aimed at limiting punitive damages and for the adoption of the “English rule” in which the loser pays legal costs.
In his speech, Breeden specifically targeted frivolous shareholder suits.
“We have class actions filed within two to three hours of a stock price moving up or down,” he said, adding that he did not mean there should be a curb against suits filed by investors who are the victims of fraud.
Breeden also said he hoped that Congress would repeal use of the Racketeer Influenced and Corrupt Organizations Act in civil securities lawsuits. The federal RICO law allows plaintiffs to sue if there is a pattern of wrongdoing and to seek treble damages.
A pattern can be established if there are two or more instances of a crime--including securities fraud. This means a plaintiff can sue for RICO as well as for the individual crimes.
“This is nothing more than giving two bites of the apple, one for securities law and one for RICO,” Breeden said.
He said he also thought Congress should reform the judicial system by adopting a form of the “English rule,” reducing lawyers’ fees and capping the liability of corporate directors.
William McLucas, who heads the SEC’s enforcement division, also told the group there is too much litigation and blamed some of it on lawyers trying to boost their fees.
“Maybe it’s because business is so bad that lawyers find it worthwhile to litigate instead of settling.”
He said the SEC currently has between 85 and 90 cases in active litigation as compared with 19 to 20 cases five years ago.
On another matter, he said that the SEC’s investigation into wrongdoing in the U.S. Treasury market now encompasses as many staff members as it did during the height of the Drexel Burnham Lambert/Michael Milken probe.
“How long that will continue is yet to be seen,” he said.