I found today's Supreme Court decision about shareholder lawsuits sensible and necessary. The decision says that class-action suits will only go forward if there's better evidence that corporate officers have intentionally deceived shareholders. A lawsuit won't make it past the early rounds unless the facts are "cogent and compelling" in showing the officers' intent to deceive, and that has to equal or outweigh any evidence suggesting innocence. It's good news for companies.
This case concerned Tellabs, a Naperville, Ill. telecom. It's a public company. In 2000 and 2001, the CEO and the co-founder talked about the promise of orders in overseas markets. Those orders didn't happen, sales dropped, and the stock price dropped. Shareholders put together a class-action suit alleging those two executives intentionally misled the investing public.
I confess I haven't dug deep into the Tellabs files, so I can't judge the merits of the case. But I'm with the Supreme Court on this one. There are a handful of intentionally deceptive companies and corporate officers out there. But the number of frivolous lawsuits is getting ridiculous, and I hate the warnings that now appear on food labels, at beaches, and everywhere in life as a result: Yes, I'm aware that swimming can lead to drowning, and thanks for the alert that my peanut-butter candy contains peanuts.
I don't know why we're so lawsuit-happy in the U.S. Maybe it's our powerful trial lawyers, maybe it's our bloated tort law, and maybe it's something to do with individuals wanting to shunt the blame for their mistakes to the big bad companies. Of course companies misbehave; look no further than the tobacco companies for evidence of that. (
This is an alarming report about their efforts to hook kids on cigarettes.) But sometimes you lose money on a stock and it's no one's fault but your own. Letting so many class-action lawsuits tie up the courts and ratchet up plaintiff-lawyers' salaries doesn't do this country any good, and I'm happy to see the Court requiring substantial evidence before letting these suits go forward.
Having had this heated discussion in our office many times, I know a lot of people disagree with me on this one, so let 'er rip.
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