Brokers to Seek to Halt Anti-Securities Laws
Top Wall Street officials said they would push for federal legislation to prohibit state initiatives to circumvent federal securities laws and regulations.
The officials, gathered over the weekend for their annual industry convention, said they may try to keep alive the broad business coalition that opposed California’s Proposition 211, which would have made it easier to bring shareholder lawsuits. The ballot initiative was defeated.
“We can’t keep spending $35 million every time one of these pops up,” said A.B. Krongard, chairman of Alex. Brown & Sons Inc. of Baltimore and a former chairman of the Securities Industry Assn. “But we’ve shown we’re going to react quickly and aggressively.”
Proposition 211 essentially would have overridden some of the new protections given corporations against shareholder suits under the Private Securities Litigation Reform Act, which was enacted last December when Congress overrode President Clinton’s veto. Since the federal law’s passage, only 40 class-action securities lawsuits have been filed, down from an annual average of 140, the SIA said.
Under the California measure, a company and its executives and directors could be more easily sued for damages caused by a big drop in their stock price if they had made positive statements about a company’s prospects. Backed by trial lawyers and some shareholder advocates, Proposition 211 would have applied to any company that has either shareholders or employees in California.
Wall Street opposed Proposition 211 with such virulence that even the New York Stock Exchange, a self-regulatory organization funded by membership dues and transaction fees, contributed for the first time to such a fight, chipping in $300,000. “I made sure we discussed it at the board level, having never invested that kind of money before,” NYSE Chairman Richard Grasso said.
Grasso said it was not improper for a regulator to contribute to a political battle and said Wall Street was not trying to shield itself and its corporate clients from legitimate legal actions.
With reports that Colorado may be preparing a similar initiative, Wall Street officials will try to head off such measures by going to Congress.
Marc Lackritz, president of the securities industry trade group, said any legislation would have to be carefully crafted to ensure that states could maintain tough anti-fraud statutes, which often differ from federal law, while prohibiting other kinds of state securities laws that effectively circumvent national laws and regulations.
