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Shareholder arbitration: "The One Best Idea"



Our own Jim Copland has an op-ed in Thursday's New York Sun on the idea, now under consideration at the Securities and Exchange Commission, of allowing public companies to change their bylaws to opt for arbitration in lieu of traditional class-action shareholder suits:

Why should we be excited about this idea? America�s unique securities lawsuits are regularly cited among the top reasons executives would prefer to be listed abroad. For the diversified shareholder, these suits accomplish little: They merely shift dollars from one set of investors to another, so the common investor with a broad portfolio of securities is equally as likely to be a plaintiff as a defendant.

Only one group is sure to prosper from securities litigation: the plaintiffs� lawyers. And securities class-action lawyers have been profiting handsomely indeed. Even excluding Enron and WorldCom litigation, securities settlements in 2006 totaled a record-shattering $10.6 billion, more than 300% above those in 2005.

The lawyers argue that the threat of such litigation deters corporate fraud. But academics who have studied the issue, such as Michael Perino at St. John�s Law School, have found this deterrent effect largely illusory.

 

 


Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.