February 4, 1994
TO: BOARD OF GOVERNORS NO. 13-94
SEC RULES COMMITTEE NO. 10-94
RE: CHAIRMAN LEVITT'S REMARKS ON PRIVATE SECURITIES LITIGATION
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At a recent meeting of the Securities Regulation Institute, SEC Chairman
Arthur Levitt expressed the need for appropriate legislation to limit private
securities litigation. While recognizing the important role that private
litigation serves as a supplement to the Commission's enforcement activities and
as the primary vehicle for compensating defrauded individuals, Chairman Levitt
stated, "Perhaps investors in the aggregate would be better off if we placed more
stringent limitations on access to the courts and penalized those who abuse the
litigation system."
Specifically, Chairman Levitt recommended: (1) adding to Section 10(b) of
the Securities Exchange Act of 1934 a
fee-shifting provision that would expressly authorize courts to require that
plaintiff's counsel pay for the cost of defending a case brought without any
substantial basis in fact or law; (2) implementing measures to prevent law firms
from using professional plaintiffs or otherwise maintaining an inventory of
shareholders to serve as nominal plaintiffs in derivative suits; and (3)
eliminating the overlap between private remedies under RICO and those available
under the federal securities laws.
In addition to seeking these legislative reforms, Chairman Levitt stated
that "the SEC has a responsibility to see what it can do on its own to minimize
unproductive securities litigation." In this regard, he suggested that the SEC
encourage judges to make greater use of their existing authority, such as by
filing an amicus brief in support of an appropriate motion to dismiss. He also
recommended that the Commission use its interpretive authority to clarify the
federal securities laws, which, in turn, would provide greater certainty to
business transactions and allow issuers to avoid litigation or at least to
dispose of lawsuits at an early stage.
Finally, in discussing the Commission's enforcement program, Chairman
Levitt stated that steps are being taken to assist the Division of Enforcement
and the regional offices in making their enforcement activities more efficient.
One step the Commission is taking is streamlining the process for approving
formal orders of investigation and subpoena enforcement actions.
A copy of Chairman Levitt's remarks is attached. We will keep you informed
of further Commission announcements in this area.
Paul Schott Stevens
General Counsel
Attachment