A Utah official told Congress Wednesday that some proposed "reform" of securities fraud laws could give "free rein to financial swindlers."
Mark J. Griffin, director of the Utah Division of Securities, worries about a bill that would restrict private suits seeking money for damages suffered from fraud.Supporters say that will help prevent frivolous lawsuits that cost legitimate businesses too much money. The House Energy Subcommittee on Telecommunications and Finance held a hearing on the bill Wednesday.
Griffin said it would stop "a handful of dubious securities fraud lawsuits" but "will eke out this minuscule benefit only by inflicting a massive harm - that is an indiscriminate curb on access to the courts for all small investors who fall victim to financial swindles."
Griffin, testifying on behalf of the North American Securities Administrators Association, said his group believes no "avalanche" of frivolous fraud suits have occurred despite what bill supporters say.
He said that while stock trading has increased dramatically in the past two decades, "the level of securities class-action lawsuits today is essentially the same as that of some 20 years ago."
Griffin said he worries the bill might let "some parties to fraud off the hook" by limiting the liability of lawyers and auditors or others who should have stopped a fraud.
He said it could deny access to courts by small investors by requiring the losing party to pay all court costs unless the judge determines that the position of the losing party was substantially justified.
"Few aggrieved investors - if any - would be willing to risk having to pay the millions in legal fees that such defendants can easily run up," he said.