Cox Hits Home in Attack on Securities Suits ‘Fraud’ : Legislation: He says ‘virus’ of nuisance claims preys on local high-tech firms. His bill passed House but faces tough Senate fight.
Rep. Christopher Cox (R-Newport Beach) brought his controversial battle for securities litigation reform to Orange County on Friday, describing what he called “frivolous” securities lawsuits as “a virus” preying on the area’s high-tech electronics companies.
“Nobody knows exactly what is going to happen when they go into court,” Cox told members of the American Electronics Assn.--a national trade association representing 3,000 companies--gathered for a luncheon at the Sutton Place Hotel. “Our justice system is a great big wheel of fortune.”
Cox has authored a bill called the Securities Litigation Reform Act that would make it more difficult for investors to prove securities fraud in federal court by requiring them to be more specific in their allegations of wrongdoing. He said a flood of nuisance lawsuits have been filed in recent years by investors whose stocks have lost value, often for completely legitimate reasons.
“It’s the fraudulent use of our securities laws to extort money,” Cox said of the lawsuits. “When this went on in the 1930s in Chicago, it was called organized crime. The only difference now is that it’s legal.”
Cox’s bill recently passed the House of Representatives by a vote of 325 to 99, but it faces a stiff fight in the Senate. It has been opposed by trial lawyers as well as by U.S. Sen. Barbara Boxer (D-Calif), who at one point contended that it could apply to small investors in the failed Orange County investment pool. Cox responded by revising the legislation to apply only to future lawsuits.
Friday’s audience was very sympathetic and expressed strong support for the securities legislation as an antidote to what members described as a steady stream of unjustified lawsuits that is virtually crippling the financially volatile electronics industry of which they are a part.
“The common threat (of these lawsuits) is that they have no basis in fact,” said Theodore J. Smith, president and chief executive officer of Odetics Inc., an Anaheim computer support company which, he said, has been sued four times since the early 1980s. “They identify nothing that the company has done wrong except that the stock has gone down. The pragmatic approach is to settle because of the costs of defending the lawsuit and the vagaries of the jury system.”
The average cost of a securities suit settlement, Cox said, is about $8.2 million, not counting the thousands of hours of labor required to sort it all out.
Such lawsuits, according to John M. Murphy, chairman of the Orange County Council of the AEA, are bad for business. “When you get hit by a lawsuit like this,” he said, “you completely lose your focus. It’s totally unfair to employees and shareholders.”
