Issue:
A national law was passed in 1995 to protect companies from
a skyrocketing number of frivolous class action lawsuits brought
by shareholders when the value of their stock holdings declines
precipitously. Since that time, the number of cases filed
in federal courts has leveled off. However, as a result of
loopholes in the legislation, these lawsuits have flooded
into state courts--principally in California--where adequate
safe harbor protections do not exist.
Impact:
Frivolous class action lawsuits for securities fraud:
- are costly and are targeted against
the high-tech industry;
- prevent companies from providing forward-looking
information to their investors;
- deplete valuable human and financial
resources; and
- ultimately threaten the long-term viability
of the industry.
Position:
Uniform National Standards (UNS) legislation is designed
to close the loopholes and transfer these class action suits
from state to federal courts, where standards exist to determine
the validity of the claim. UNS legislation is a fair deal
that shields high-tech companies from frivolous lawsuits
while providing recourse to investors who are confronted
with securities fraud.
Cisco Involvement:
Cisco has been an active member of the Technology Network
and the Uniform Standards Coalition, two private-sector
groups that supported the enactment of Uniform National
Standards legislation.
Status:
- President Clinton signed the Securities
Litigation Reform Act of 1998.
Fast Facts:
According to the Stanford University School of Law:
- 359 companies were sued in federal court
from December 22, 1995, to April 30, 1998;
- The most active district court in the
country is in northern California; and
- High-tech is the industry most frequently
sued.