Saturday, July 1, 2006

Congressional Hearings on Plaintiff's Attorneys

With the Milberg Weiss indictment, Congress is holding hearings to amend the Private Securities Litigation Reform Act, to include provisions regarding "attorney accountability." Once again, Congress and regulators are attempting to address a problem by creating new laws, when the ones that we already have are not being enforced.

I understand that Congress is comprised of politicians, who feel this need to appear to be "doing something" when a problem arises, but enacting new rules and regulations is simply a feel-good solution, and often has unintended consequences.

Witness Sarbanes Oxley - a hastily and poorly drafted series of statues and regulations has impacted the financial markets far beyond the original issue, and created new rules and regulations when the existing ones were just fine - they simply were not being enforced.

Now, this amendment, to address the Milberg Weiss issue. Why is there a need for more legislation? The individuals accused of wrongdoing have been INDICTED! If the indictments are correct, these individuals will go to prison. Is there a need for another law to make illegal that which is already illegal?

For those interested, the proposed bill, entitled the "Securities Litigation Attorney Accountability and Transparency Act," would add "loser pays" provisions, compel disclosure of conflicts (we already have that rule) and add "competitive bidding" to the process of selecting lead plaintiff's counsel.

I am a defense attorney, and have participated in the defense of a number of class actions. I am certainly not a fan of class actions, but this bill is over the top.

Congress is trying to make the appointment of the lead plaintiff's attorney subject to competitive bidding? Have they lost their minds? First, there is nothing more important in litigation than the relationship between an attorney and his client. While it is certainly true that a class action plaintiff's attorney represents more than the lead plaintiff, it is that relationship that drives the litigation. The court is now going to put out to bid who represents the lead plaintiff?

Additionally, this is not some pork barrel construction project, where a large part of the costs for materials and labor are fixed. This is often high end securities litigation, where you do get what you pay for. Some of these class action law firms spend millions of dollars and years of work on these cases. This is not something that any law firm can handle. It requires expertise, skill and experience.

The 10b-5 Daily has the links to the bill, and the prepared remarks. The Secretary of Massachusetts, William Galvin, an outspoken investor advocate, and Professor James Cox of Duke University School of Law, were two of the four witnesses, and largely opposed the bill. For those of you interested in theory and practical aspects of class action litigation, their testimony is an interesting overview of recent events in class action litigation.
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