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Securities Law Summary
New Bill Seeks to Curb Illegal Kickback Schemes Involving Attorneys in Securities Class Suits
Securities Litigation Attorney Accountability and Transparency Act
H.R.3931, H.R.5463, S. 3033, 05/19/2008
Basic Information
U.S. Senator John Cornyn (TX) introduced a bill that seeks to protect private investors by promoting transparency and accountability of attorneys in private securities litigation. The proposed legislation introduced on May 19, 2008 and entitled Securities Litigation Attorney Accountability and Transparency Act seeks to curb the allegedly rampant practice of paying clients to sign up as lead plaintiffs in securities class actions.
In particular, the new proposed legislation would compel plaintiff and plaintiff’s attorney to provide sworn, signed certifications that identify any actual or promised payment by the attorney to the plaintiff, beyond the plaintiff’s pro rata share of any recovery. It likewise directs them to submit certifications pertaining to (1) legal representations; (2) contributions; and (3) conflicts of interest.
This new bill actually amends the Securities Exchange Act of 1934 and Securities Act of 1933, providing that, in any private action in which the court enters a final judgment against plaintiff on the basis of a motion to dismiss, motion for summary judgment, or a trial on the merits, the court shall, upon defendant’s motion, determine whether: (1) the position of the plaintiff was not substantially justified; (2) imposition of fees and expenses on the plaintiff’s attorney would be just; and (3) the cost of such fees and expenses to the defendant is substantially burdensome or unjust.
The bill further provides that the court, in exercising discretion over the approval of lead counsel, should employ a competitive bidding process as one of the criteria (unless the court determines that such a process is not feasible).
Likewise, the bill states that courts should award the defendant reasonable fees and other expenses, and impose such fees and expenses on the plaintiff’s attorney, if the court makes positive determinations in such a case.
After reading this piece of legislation twice, Senators voted to refer it to the Committee on Banking, Housing, and Urban Affairs. In the House of Representative, this legislation has two counterpart bills.
Rep. Jeb Hensarling (TX) introduced H.R. 5463 on February 14, 2008. On March 25, 2008, members of the House referred it to the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises. Rep. Richard H. Baker (LA) introduced H.R. 3931 on October 23, 2007. On March 25, 2008, members of the House voted to refer it to the same subcommittee.
View a PDF of the proposed legislation.Service
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