Expansion of Securities Litigation Proposed

By Loretta Macktal, Executive Assistant to the Vice President, Government Relations

Capitol Update, May 16, 2003 Share this on FacebookTweet thisEmail this to a friend

SB 766 (Dean Florez, D-Shafter) may be voted on in the Senate May 20. The bill would expand liability for securities fraud by overturning two state court decisions that limit claims for securities fraud to those individuals who are market participants and who knowingly and intentionally make false statements.

The bill provides that a person may be found liable for securities fraud even if that person did not directly engage in market activity. Also, the bill provides that a person may be found liable for participating in the making of a false statement if he or she is only "reckless", a lower standard than "knowingly and intentionally. "

CMTA and many other business trade associations oppose the bill. The bill would exacerbate and expand the abusive securities litigation practice in the state. The plaintiffs' securities bar routinely file frivolous "strike suits" against any corporation, and its officers and directors, whose stock price significantly decreases. Corporations and individuals are forced to settle many frivolous suits simply to avoid costly litigation. This bill creates a wider net of potential targets and a lower standard for liability, making this practice even more lucrative for the firms bringing these suits.

Supporters of the bill include the Consumer Attorneys of California and labor unions, now dominated by public-sector employees.
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