APRIL 1998 · VOLUME 18· NUMBER 4

The law made it harder for aggrieved investors -- 43 percent of U.S. households have invested in stocks either directly or through mutual funds -- to file class action suits in federal courts. One of the bill's most contentious provisions established a "safe harbor" for companies' forward-looking statements, meaning that as long as a firm attached a disclaimer to any predictions it made about the future, it could not be held liable if those predictions did not hold true. The industry argued it was getting hit with lawsuits within days of company stock prices falling. High-tech firms contended they were hit particularly hard because their stocks tended to be the most volatile. On December 22, 1995, the day the bill became law, Wall Street -- which had contributed $17.8 million to federal candidates in the 1996 election cycle -- was smiling.

Fast forward to 1998. Wall Street and high-tech firms are back on Capitol Hill for Senate Banking Committee consideration of legislation that would create uniform standards for securities class action suits by requiring all suits dealing with nationally traded securities to be argued in federal courts. One industry insider boasts that a bill will be delivered to the President before Memorial Day.

The industry says new legislation is necessary because the 1995 law has not stopped "frivolous lawsuits." It has merely caused more of these suits to be filed in state courts -- not under the jurisdiction of the Private Securities Litigation Reform Act.

Consumer advocates like Barbara Roper, director of investor protection at the Consumer Federation of America, reject industry's rationalization for imposing federal anti-class action rules on states. "It is premature to extend the 1995 law to state courts when we do not even know the law's effects," Roper says. She also contends that state courts offer investors more protections such as the ability to sue parties, such as accountants, that "aid and abet" deception in stock or bond deals -- no longer possible in federal courts.

Securities, accounting and high-tech firms took their case back to Capitol Hill to the same lawmakers who had helped plead their case in 1995. In May 1997, Representatives Rick White, R-Washington and Anna Eshoo, D-California, sponsored industry-backed legislation. Senators Chris Dodd, D-Connecticut, and Phil Gramm, R-Texas, introduced their Senate version in October 1997.

Lack of support from Securities and Exchange Commission Chair Arthur Levitt helped bolster consumer groups' case.

The industry responded by ratcheting up its fierce campaign. So far in the 1997-1998 election cycle, securities, accounting and computer firms have distributed $17 million in PAC, soft money and individual contributions to federal candidates and parties, 53 percent to Republicans. The leading industry trade groups have mobilized to form the Uniform Standards Coalition, which spent $780,000 on lobbying in the first six months of 1997 -- making it the seventh largest lobbying spender for groups without in-house lobbyists. The coalition hired Boland & Madigan and Johnson, Smith, Kitzmiller et. al., to make its case on Capitol Hill. David Johnson is a former aide to Senate Majority Leader George Mitchell and represented Arthur Andersen during the 1995 fight, and Michael Boland was a top aide to Trent Lott and represented KPMG Peat Marwick in 1995.

A relative newcomer to the political scene, computer companies are maximizing their clout with the formation of the Technology Network PAC. Several prominent high-tech executives, including Netscape's James Barksdale and Kleiner Perkins's John Doerr, formed the political action committee last summer. Technet's major influence in 1997 was as a "conduit" for nearly $120,000 in contributions to key lawmakers on Capitol Hill. A conduit can be an individual, group or PAC that collects and delivers contributions that donors designate for a specific candidate. These contributions do not count against the PAC's campaign spending limits because it is strictly an intermediary party for the donation. This technique enables a group to take credit for raising a lot of money for a candidate without skirting spending laws.

Securities, accounting and high-tech companies are opposed by trial lawyers, who represent investors in class action suits. Trial lawyers almost fought off the Private Securities Litigation Reform Act in 1995 with a Clinton veto -- only to see the veto overridden. A traditional Democratic supporter, the Association of Trial Lawyers of America's PAC has distributed $728,000 to federal candidates, 90 percent to Democrats, in the 1997-1998 election cycle. Milberg, Weiss, et. al., a firm of trial lawyers involved in an estimated one-quarter of all securities class action suits filed in the United States, has distributed at least $228,000 so far this cycle, 96 percent to Democrats.

Ongoing efforts to preserve investors' right to file class action suits suffered a setback in March when SEC Chair Levitt switched his position and came out in support of the legislation -- during his confirmation hearings for a second term. Levitt's support smoothed the way for passage of the uniform standards bill in the Banking Committee.

The American Electronics Association, a leader in the Uniform Standards Coalition, has another big day planned for May 5: The trade group is swearing Eshoo and White, the House sponsors of uniform standards legislation, into its High-Tech Legislator Hall of Fame. Hundreds of industry leaders, with checkbooks never far away, will attend the event with prominent elected officials.

-- Jennifer Schecter