Senate Adopts Bill Setting Limits on Fraud Suits : Securities: A 1934 law would be changed to grant legal protection to companies that make good-faith projections.

The Senate on Wednesday adopted a bill making it more difficult for investors to prevail in securities fraud lawsuits, a measure that backers contend would deter frivolous suits but critics say would prevent legitimate recoveries by victims of deceit.

Proponents of the bill, a version of which has already cleared the House, fended off numerous Democratic attempts to amend it, including one that would have granted investors more time to initiate legal action.

The bill, approved by a 70-29 vote, would amend the 1934 Securities Exchange Act and grant legal protection to companies that make good-faith earnings projections that do not pan out.

“We should be very careful about denying economic free speech,” said Sen. Hank Brown (R-Colo.).

But the bill’s opponents mocked that “safe harbor” provision as “a pirate’s cove,” saying such protection would invite a repeat of large-scale consumer frauds such as the Lincoln Savings & Loan Assn. debacle.

The bill would curb the use of class-action lawsuits, allow investors with the greatest financial interests in such actions to serve as “lead” plaintiffs, cap the amount they may recover and limit their attorneys’ fees.

Among those who vigorously resisted the financial-stakes formula for designating “lead” plaintiffs was Sen. Barbara Boxer (D-Calif.), who noted that lead plaintiffs can often control the course of litigation. Such people, she said, often turn out to be co-conspirators.

Boxer had better luck on another amendment, which called for the Securities and Exchange Commission to report to Congress within 180 days after the bill’s enactment any deleterious effects on elderly investors and retirement plans. It passed 93 to 1.

The overall bill would also require a judge to determine, upon a lawsuit’s final adjudication, whether either party had pressed a frivolous action. If so, the court would have to impose sanctions on the offending party.

“This is a good bill, and it’s long overdue,” said its chief author, Sen. Alfonse M. D’Amato (R-N.Y.), chairman of the Senate Banking, Housing and Urban Affairs Committee.

D’Amato said the measure was inspired in part by a broad desire to close loopholes that allow trial lawyers to file nuisance lawsuits against companies and stockbrokers in the hope that the defendants will pay a cash settlement rather than incur the expense and headache of going through a trial.

The measure had been the subject of considerable lobbying and public relations campaigns waged by both sides.

Its champions included securities and accounting firms as well as companies that issue stock. According to a policy paper by the Senate Republican Policy Committee, “the last decade has seen an explosion in frivolous private securities lawsuits.” The paper also says that almost 93% of such lawsuits are settled out of court, averaging $8.6 million each.

And the American Electronics Assn. found in a recent survey that one out of every two Silicon Valley growth companies had been named as a defendant by a class-action securities lawsuit.

The bill’s foes included consumers groups, securities regulators and associations representing the elderly. They argued that securities fraud is proliferating “at an alarming rate” and that the bill would “devastate the right of shareholders” to sue and recover damages.

Unlike the House bill, the Senate measure does not contain a “loser pays” provision that requires the losing side to pay the other’s legal fees. The two bills will now go to conference committee.