Cornyn Introduces Bill To Strengthen Transparency & Accountability In Securities Class-Action Litigation

Press Release

Cornyn Introduces Bill To Strengthen Transparency & Accountability In Securities Class-Action Litigation

Calls on Senate to Investigate & Address Abuse of Securities Class Action Law

With one of the country's former leading class-action litigators, Bill Lerach, reporting to federal prison this afternoon for participating in a $250 million illegal kickback scheme, U.S. Sen. John Cornyn, a member of the Senate Judiciary Committee, announced today that he is introducing new legislation to address what many believe to be a widespread criminal practice in the area of securities class action law.

"As recent events have shown, current securities litigation laws have been subject to abuse, and there is reason to believe this criminal activity may not be limited to just a few bad actors," Sen. Cornyn, a leading advocate of lawsuit abuse reform, said today. "It is important that corporations be held accountable through securities fraud litigation when they cheat ordinary shareholders out of their hard-earned money. But it is equally important that attorneys be held accountable when they do the same thing. The recent securities litigation kickback scandals ought to spur Congress to action."

Specifically, the Securities Litigation Attorney Accountability and Transparency Act, S. 3033, introduced by Sen. Cornyn today, will protect company shareholders and the integrity of America's legal system by promoting transparency and court oversight in the selection and compensation of class counsel in securities class action litigation. The bill helps to ensure that the lawyer for shareholder plaintiffs in securities class action lawsuits truly and faithfully represents the interests of the entire class, and not just their own interests and those of the large investors who are the lead plaintiffs.

"Fortunately, Mr. Lerach and his partner Melvyn Weiss have been brought to justice, but their shareholder victims will never see the money out of which they were cheated by these attorneys' crimes. The Securities Litigation Attorney Accountability and Transparency Act will prevent these crimes against ordinary Americans from being repeated in the future. I hope my colleagues in the Senate will quickly convene hearings on this very serious problem and move this new legislation forward," Sen. Cornyn concluded.

According to federal investigators, Milberg Weiss law firm officials masterminded a $250 million illegal kickback scheme involving their clients, and then lied in court about their actions. "The scope and the breadth of this conspiracy was breathtaking," said U.S. District Judge John Walter, who sentenced Mr. Lerach, adding that the crimes involved go "to the core of our judicial system." Mr. Lerach himself told The Wall Street Journal his illegal conduct and that of his law partners was an "industry practice." At his sentencing, one of his supporting letters quoted Mr. Lerach as saying, "Everybody was paying plaintiffs so they could bring their cases."

Sen. Cornyn's legislation would make several key reforms to current securities class action law to increase the accountability of and transparency for attorneys filing these lawsuits and the institutional plaintiffs they often represent. Specifically, it would require:

DISCLOSURE OF PAYMENTS BETWEEN PLAINTIFFS AND ATTORNEYS

Plaintiffs and attorneys would submit sworn certifications identifying any direct or indirect payments, promises of such payments, and other conflicts of interest between them, as well as all political contributions made to elected officials with authority or influence over the appointment of counsel in the case.

COMPETITIVE BIDDING FOR LEAD COUNSEL

Courts would include a competitive bidding process as one of the factors for the selection and retention of lead counsel for a class of plaintiffs.

STUDY TO DETERMINE APPROPRIATE ATTORNEYS FEES

GAO would commission a study of the last 5 years of fee awards in securities class action cases to determine the average hourly rate for lead counsel.

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