The Coffee Reforms

In the Jan. 18 edition of the New York Law Journal, Professor John Coffee presents a wish list (subscrip. req’d) of securities litigation reforms. The proposed reforms are:

(1) Congress should impose a cap on auditor liability. To make this reform more politically acceptable, Congress could overturn Central Bank and restore private aiding and abetting liability for securities fraud (at least for accounting firms).

(2) Governor Spitzer should ban, by executive order, “pay to play” practices where lawyers “compete to be selected as class counsel for the public pension funds serving as ‘lead plaintiff’ in securities class actions by making political contributions to state and municipal comptrollers, who in some jurisdictions, including New York, have exclusive control over the pension fund.”

(3) Unlike almost every other state, there is no private right of action for securities fraud under New York law. Attorney General Cuomo should draft new legislation correcting this deficiency.

Quote of note: “Such a ceiling would not protect an audit firm from repetitive litigation resulting in repetitive large settlements – say, ten suits, each for $40 million on average. But a firm forced to settle those many actions at those levels probably does not deserve to survive. It is the prospect of a one-time billion-dollar loss that merits the adoption of a ceiling.”

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