Dodd Proposal Would Help Shield Accountants From Lawsuits
WASHINGTON (AP) _ One of the Senate’s largest recipients of donations from the accounting industry is drafting legislation that would help shield accountants from lawsuits by angry securities investors.
The proposed bill by Sen. Christopher Dodd, D-Conn., among other things would allow courts to order investors, or their lawyers, to pay the legal bills of accountants if a lawsuit is deemed frivolous.
The plan also would set a minimum threshold of losses below which investors could not sue accountants and limit lawsuits to ″primary violators,″ meaning that accountants could be sued only if they were directly implicated in wrongdoing.
The proposal is being hailed by the accounting industry, whose so-called Big Six firms have spent $2 million each to lobby for legislation to limit accountants’ liabilities after an avalanche of lawsuits by investors who lost money in the 1980s savings and loan crisis.
But critics say the possibility that small, defrauded investors could be forced to pay the legal bills for well-monied accounting and legal firms wrongly discourages them from trying to recoup losses.
″No individual plaintiff will ever go to court if he or she knows there is a risk of paying millions in legal fees of well-heeled corporations and defendants like Charles Keating or Michael Milken,″ a group of consumer organizations wrote Dodd.
The group, which includes the Consumer Federation of America, the Consumers Union and Public Citizen, called Dodd’s proposal ″anti-consumer, anti-elderly and anti-investor.″
Accountants, however, say they need the changes in the Securities and Exchange Commission regulations because they’re spending millions of dollars a year fending off frivolous lawsuits.
″We see this as an incentive for companies that are being wrongly sued to fight and stand a very good chance of having their legal fees reimbursed,″ said Lynn Zempel, a spokeswoman for the Coalition to Eliminate Abusive Securities Suits, which represents several major accounting firms.
The accountants found a sympathetic ear in Dodd, who got $53,500 from the industry’s political action committees for his successful 1992 re-election campaign, the most of any member of Congress, according an analysis of Federal Election Commission records by the trade publication Accounting Today.
It’s normal for such money to flow to Dodd because he is chairman of the Senate Banking Committee subcommittee that deals with securities issue.
Ellen Miller of the campaign finance watchdog Center for Responsive Politics said Dodd’s bill leaves the appearance that he is ″serving as the handmaiden of the industry and doing their bidding at the expense of the public.″
But Dodd scoffed at that notion: ″$53,000 out of a $4 million campaign and I’m in the tank with them? I find that offensive.″
Dodd said his bill is ″investor friendly″ and would still leave accountants liable for huge damages if the evidence suggests they were primarily responsible for wrongdoing.
He also touted a provision that would extend the statute of limitations in securities fraud cases and noted that his bill would for the first time give the industry a self-policing mechanism.
In recent years, accounting firms have been hit hard for their connections to failed savings and loans. In 1992, Ernst & Young agreed to a $400 million settlement with the government to do away with pending litigation involving the firm’s audits of failed S&Ls. Earlier this month, Deloitte & Touche agreed to a similar settlement worth $300 million.
Numerous class-action lawsuits have grown out of these and other failed high-risk investment schemes involving S&Ls, securities investment pools and other investments.
But in hearings last year before Dodd’s subcommittee, the SEC provided statistics disputing that there has been a drastic rise in the number of securities cases over the past 20 years.
″The numbers don’t reveal the type of increase that ordinarily would be characterized as an explosion,″ SEC enforcement chief William McLucas testified.
Critics charge Dodd’s bill will effectively preclude the elderly or small investors from recouping losses from bad investments made on the advice of accountants.
″In America, there are well-established principles of justice; access to redress is not just for the wealthy,″ Craig A. Goettsch, president of a state securities regulators group, wrote Dodd. ″A threshold requirement for standing to sue is unconscionable and should be deleted.″
Dodd said he is willing to listen to his critics.
″We’ve obviously hit a sensitive point. But we’re still willing to talk and listen to people’s objections,″ he said. ″This is a working draft.″