Good morning. It is a great honor for me to have the opportunity to testify today. My name is Thomas E. O'Hara, and I am the chairman and a founder of the National Association of Investors Corporation (NAIC). The NAIC is a largely volunteer organization of more than 700,000 individual investors and 33,000 investment clubs from all over the nation. We are a not-for-profit association founded more than 46 years ago. Our organization is committed to helping members learn about investing and use that knowledge to build financial security for themselves and their families.
The NAIC is an organization made up mostly of ordinary folks. Our member clubs consist of small groups of friends, neighbors, and co-workers who pool their resources and share decision-making about which investments to make. Many of you may be familiar with the Beardstown Ladies, a group of women who started an investment club many years ago and have achieved celebrity status as a result of their success. The Beardstown Ladies are members of the NAIC, and their story is very typical of NAIC members. Most of our members are relatively inexperienced investors focused on long-term investment success. They are not Wall Street traders, juggling multi-million dollar portfolios and making dozens of trades every day.
But to say that NAIC members are not serious about their investing would be completely inaccurate. In fact, the opposite is true. Our members are aggressive, shrewd and quite successful. They thirst for knowledge and information, and they use that information to make educated decisions. Clubs meet regularly to share information and evaluate the performance of their investments. Our members want to be as well-informed as possible and are always seeking the latest news that can be used to enhance their performance.
Perhaps at no time has that quest for information been more important than now. We are all aware of the continuing strong performance of the stock market over the last three years -- despite the volatility of the past several days, there is no denying that we are enjoying as extended a period of market growth as our country has ever seen. The stock market's gains have resulted in a dramatic increase in the number of people investing. Our membership, in fact, has more than doubled just in the last three years. With so many new investors, information is more important than ever.
Today, however, there is a very real threat to our investors, and that is the reluctance of an increasing number of companies, particularly high-tech companies, to provide the kind of information NAIC investors count on to make sound investment choices. We thought the threat had passed, but it persists.
This threat results from a small group of securities attorneys who, for a number of years, handcuffed America's fastest-growing companies by filing abusive class action lawsuits. These suits alleged wrongdoing or fraud on the part of companies, often with little or no supporting evidence. The attorneys were using our legal system for personal gain, filing meritless suits against companies in the hope of extracting multi-million dollar settlements -- of which the attorneys took about a third in contingency fees. Shareholders generally got only a small fraction of their alleged "loss," while the attorneys walked away with millions of dollars in fees. The cost of either fighting these lawsuits or settling them -- both of which ran into the millions -- came directly out of the pockets of shareholders. Even settlements paid primarily from insurance resulted in higher premiums, meaning that shareholders ultimately paid.
Unfortunately, these "strike suits," as they are called, have tended to target America's high-tech companies, mainly because the volatile and competitive nature of the business tends to result in sudden changes in the stock price of high-tech companies. It is a part of NAIC's fundamental philosophy to encourage our members to buy stock in emerging and growing companies. High-technology stocks obviously fall into this category and, as a result, they are a part of the portfolio of virtually all of our members. The keys to becoming successful with high-tech investments are a willingness to recognize -- and tolerate -- the inherent volatility of the business and access to crucial forward-looking information so an investor can make a wise decision. It is this last piece -- the forward-looking information -- that is being stifled by today's unscrupulous attorneys, under the guise of protecting investors. Forward-looking information is not dangerous to studious investors; it is, in fact, essential.
Two years ago, I joined hundreds of thousands of NAIC members in cheering the passage of the Private Securities Litigation Reform Act, which we thought would open a new era of disclosure that would benefit all investors. Sadly, it has not worked out that way. The same securities attorneys who were tying companies up in knots a few years ago are doing so again -- only the forum has changed. Instead of filing their class action lawsuits in federal courts, they simply moved them to state courts, where the federal reforms Congress labored to pass in 1995 do not apply. The 1995 reforms included a "safe harbor" provision that ensured that companies could provide investors with voluntary forward-looking information. No such provision exists in state courts and it is that, more than anything else, that has left investors out in the cold.
This situation has ramifications far beyond just investors, however. The freeze on forward-looking information cycles back to the companies themselves. If a company won't provide information, investors become reluctant to invest. The companies, however, rely upon those investments for the crucial capital they need to design more innovative products, expand their firm and create more jobs. Without investors, companies wither on the vine. Jobs are not created and new companies flounder. In the end, the entire American economy suffers.
It is for this reason that I come before you today to strongly endorse, on behalf of the NAIC's 700,000 individual investors, the Securities Litigation Uniform Standards Act of 1997. As you all know, this legislation, a version of which has been introduced in the House as well as in the Senate, would create a set of uniform national standards for private class-action lawsuits involving nationally-traded securities, requiring that such cases be heard in federal court. This would ensure that companies and investors get the full intended benefit of the 1995 reforms. It is a common sense solution to a problem that plagues our high-tech industries and leaves investors frustrated and fearful. Adopting the Gramm-Dodd bill would be a tremendous boost to investors of all types.
The NAIC vigorously supports this legislation and our members stand ready to help in any way we can to ensure that this bill becomes law as quickly as possible. We urge the Banking Committee in the strongest possible terms to move forward quickly with this legislation and help America's investors -- and the companies we invest in -- continue to thrive and prosper.
Thank you very much.
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