The Mischievous Proposition 211
Blame it on California's Proposition 211. Intel Corp. just canceled an Oct. 31 meeting with analysts because it doesn't want to provide investors with "forward-looking statements" that could be used in securities class action suits. The worry is that if the California ballot initiative is passed, investors will have an easier time suing the company if Intel's stock drops unexpectedly and its projections on future earnings are construed as misleading statements. Worse, under Prop 211, Intel's board and company officers could be personally liable if the company's stock plummets because of what is determined to be misleading statements or actions. This is unacceptable. Prop 211 is a boon for class-action plaintiffs' lawyers and a threat to companies everywhere, especially those in high tech. Companies with shareholders in California could face securities suits in that state. Both President Clinton and Bob Dole oppose passage of Prop 211 on Nov. 5. So do we.
The California initiative is an end-run by plaintiffs' lawyers around 1995 federal tort reform legislation designed to stop just what Prop 211 is intended to encourage--frivolous class actions based on stock movements. Prop 211 says that people owning one share of stock can claim in class actions that they were defrauded just on the basis of a drop in price. They don't have to prove in state courts that they relied on deceptive statements in their investment decisions. It allows for punitive damages in state courts in securities litigation--unauthorized under federal law. It also blocks regulation of lawyers' fees in class actions, unless a court deems them "unconscionable."
In the end, individuals need to take more personal responsibility when they invest their funds. They need more information, not less, to protect themselves from stock fraud. If America is to continue being an entrepreneurial society, its businesspeople need protection from capricious lawsuits that mostly enrich the lawyering class. California's Prop 211 is a bad bill.