WASHINGTON — President Clinton vetoed a controversial bill Tuesday that would make it harder for investors to file and win lawsuits charging publicly traded companies with securities fraud.
The bill, vetoed just hours before it would have become law at midnight, was strongly backed by accountants and business groups--particularly California's legions of high-technology companies. Fighting it were trial lawyers, consumer organizations and state securities regulators.
Both sides lobbied hard, with generous campaign contributions, newspaper advertising programs and sophisticated public relations campaigns. Litigation reform was a plank in the House Republicans' "Contract with America."
Supporters of the bill said it would deter attorneys from filing "strike suits" against high-tech and entrepreneurial firms that are easy targets because of the volatility of their stock prices.
Opponents said it would erode the kinds of investor protections needed against individuals such as Charles Keating, whose company fraudulently sold questionable bonds to customers of his savings and loan association. Accountants, lawyers and securities dealers eventually paid $240 million to the bondholders.
There is a strong likelihood that Congress can muster the two-thirds majority in each chamber to override the president's veto and adopt the measure. The conference bill, a compromise of House and Senate versions, was approved Dec. 5 by a 65-30 vote in the Senate. The House passed it Dec. 6, voting 320 to 102.
The legislation would:
* require plaintiffs to provide more detailed information about the alleged fraud, and the intent of the defendant, when they file the suit;
* allow judges to impose a "loser pays rule," making the losing side potentially liable for attorneys' fees;
* create a "safe harbor" for companies to make announcements about their prospects without fear of being sued;
* limit liability for defendants to their share of the financial damages caused by the alleged fraud. Currently, any defendant found liable can be made to pay the entire financial penalty.
Because Keating had no assets, the accounting firms became the "deep pockets" for the settlement.
The principal author of the bill was Rep. Christopher Cox (R-Newport Beach), who noted that the final version was a bipartisan effort.