NYSE, Nasdaq, Amex Contributing $520,000 to Defeat Prop. 211

The three leading U.S. stock markets say they are contributing a total of $520,000 to try to defeat a California ballot proposal that would make it easier for shareholders to sue companies for fraud.

Nasdaq, the New York Stock Exchange and the American Stock Exchange say Proposition 211 would hamper companies’ ability to raise capital by discouraging them from making financial forecasts and by increasing legal expenses.

“This goes to the heart of capitalism in California,” Nasdaq Stock Market President Alfred Berkeley said Monday. “You’ll get a mass resignation of company directors in California if this passes.”

Berkeley said Proposition 211, which will be on the state ballot in November, poses a threat that justifies Nasdaq’s $250,000 contribution. The contribution appears to be Nasdaq’s first to a political cause, he said.

The NYSE’s $250,000 contribution “is not unprecedented but very unusual,” said Ray Pellecchia, a spokesman for the exchange. “We did it because of the importance of the issue to listed companies and investors.”

Proposition 211 would lower the thresholds of proof for investors filing suit and would increase the exposure of individual executives, accounting firms and brokerages to fraud complaints filed in California state courts. It seeks to counter a U.S. law passed in December that curbs use of federal courts for these suits.

Some securities experts said the stock markets’ venture into the political arena risks tainting the public’s perception of their neutrality.

“It’s inappropriate for umpires and enforcers to lobby and take partisan positions,” said Columbia University law professor John Coffee.

But Vanderbilt University law professor Donald Langevoort said he isn’t bothered by the contributions. “The proposal is a matter of great concern to American corporations, and the markets have come to the conclusion that the best interest of the American public lies in defeating this initiative,” Langevoort said.

He said the markets have frequently lobbied Congress and state legislatures on issues of importance to them.

The three industry regulatory bodies promote and monitor trading on their stock markets, police U.S. brokers and oversee arbitration of broker-investor disputes. They said they decided separately to contribute to Sacramento-based Taxpayers Against Frivolous Lawsuits.

In addition to the NYSE and Nasdaq contributions of $250,000 each, Amex is contributing $20,000, spokesmen for the regulatory bodies said. Amex normally makes political contributions through its political action committee but did not do so in this case, Amex spokeswoman Arda Nazerian said.

Proposition 211 would make it easier for shareholders to sue companies and their professional advisors for fraud in California state courts. It seeks to counter a U.S. law passed in December by Congress, over President Clinton’s veto, that curbs the use of federal courts for investor fraud suits against companies.

Specific provisions of the proposition would lower the threshold of proof for investors; increase the exposure of accountants, brokers and corporate lawyers to litigation; and prohibit companies from indemnifying executives said to be responsible for misconduct. The proposal has been endorsed by pension funds, labor unions, retirement groups and the California Democratic Party.

“After spending 16 years on the board of America’s largest pension fund, I can assure you no one is immune from securities fraud--individuals, state and local governments or pension funds,” said Jake Petrosino, former board president of the California Public Employees’ Retirement System.

The stock markets have been joined by accounting firms, high-technology companies and securities firms, among others, in contributing a total of nearly $10 million to defeat Proposition 211. Among the largest contributors are the Securities Industry Assn.; the brokerage trade group, which has given $1.1 million; and the Big Six accounting firms, which have given $500,000 apiece, according to a Taxpayers Against Frivolous Lawsuits spokesman.

Trial lawyers have been the main contributors on the other side, helping to raise $7.5 million to date for L.A.-based Citizens for Retirement Protection and Security.

Milberg, Weiss, Bershad, Hynes & Lerach of San Diego has made about half these contributions, a spokesman for the group said. William Lerach, who has specialized in filing fraud suits when a company’s stock drops suddenly, lobbied against the federal Securities Litigation Reform Act passed last year.

Both Clinton and Republican presidential candidate Bob Dole oppose the proposition.