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Debating New Limits on Shareholder Lawsuits

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Source: Getty Images

Is it too easy for shareholders to sue companies? The U.S. Supreme Court is scheduled to hear arguments today and tomorrow asking for new limits on how far investors can take class-action lawsuits against public companies.

Lynn Turner, former chief SEC accountant and managing director of research at Glass, and Alan Pritchard, former SEC lawyer and securities law professor at the University of Michigan appeared on "Morning Call" today to debate the issue.

The case to be argued today involves an antitrust suit against fifteen Wall Street firms accused of collusion on new stock offerings. Tomorrow’s case is a securities fraud suit against Tellabs, a maker of telecommunications equipment, alleging the CEO misled shareholders about the company’s future.

Turner says it has become too hard for shareholders to bring lawsuits against companies.

“We are seeing very good cases being thrown out and that’s just not justice”, said Turner. While he does point out the need to have a reasonable system, he argues that most lawsuits are businesses suing each other, and not shareholders suing shareholders.

“You will see investors disenfranchised, and this impacts their ability to trust the market”, said Turner.

Pritchard says it used to be too easy for shareholders to bring lawsuits and now the number of cases is about right.

“These cases are an important tool for courts to use in order to get rid of meritless lawsuits”, said Pritchard, “these cases that are shareholders paying shareholders questions whether we’re willing to pay the lawyers from one pocket to another.”