In the heady legislative rush surrounding the passage of Sarbanes-Oxley, the prospect of having both the SEC and private plaintiffs' attorneys work to compensate injured investors probably seemed like a great idea. Multiple investigations and lawsuits over the same conduct, however, waste scarce resources that otherwise could go to investor compensation.
Two areas are particularly problematic: corporate defense costs and plaintiffs' attorney fees. The SEC has no power to stop a private lawsuit from proceeding while it conducts its own civil action. Accordingly, a corporation must battle on two fronts, with all of the attendant defense costs. Meanwhile, the private plaintiffs' attorneys may be able to free-ride on the SEC's efforts and still get paid high contingency fees.
"Securities regulation: end the dual approach"
Center for Legal Policy at the