Our objective here today is to take a look at the Private Securities Litigation Reform Act, which was passed over President Clinton's veto in December of 1995, and review the facts of what has been the impact of that legislation since its enactment. Let me first make the point that this is an oversight hearing, not a legislative hearing. We do not have any legislation pending before the Subcommittee on this issue now. The purpose of the hearing is to make a determination as to whether we should have any legislation pending before the Subcommittee.
We have a broad-based group of witnesses. I do not think anybody could be justified in saying that we are not hearing from all sides of this review. I think that is important, because I think each of us wants to try to ascertain the facts.
We have had this change in law now for about 19 months. There have been several studies of the Act that have been conducted, evaluating the impact of its provisions. And I do think there are some conclusions that can be reached. Number one, the predictions of disaster by all the opponents of the Reform Act have turned out to be mistaken. We have not had any rise in new security fraud, and the courthouse doors have not been closed to people who have meritorious cases.
Secondly that there has been a decline in the race to the courthouse to file class action suits.
There has, on the other hand, apparently been a rise in the use of state courts as a forum for securities class action suits.
I think it is now clear that what we did to try to make it easier for companies to share forward-looking information with would-be investors was not successful. It is totally clear, when you look at the annual, quarterly, and other reports that companies are making subsequent to the Reform Act, that at least those in our nation's corporations who are concerned about securities litigation risk do not believe we did enough. I am concerned about it because capitalism works better when you have better information, more economically efficient decisions can be made. It is a terrible thing for vigorous markets to have something that limits information. I am very concerned about that.
In conclusion, let me say that it is clear that our legislation, in its final form, did not, nor did I expect
it to, change the fact that it is still cheap to file lawsuits, and it is still expensive to defend yourself.
We still have an underlying bias in the system in favor of lawsuits being filed.
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