President Clinton today signed legislation aimed at protecting public high-tech companies from facing a wave of shareholder lawsuits every time their stocks take a dive.
The Securities Litigation Uniform Standards Act would require that class-action shareholder suits brought against companies for failing to meet earnings expectations would have to be filed in federal court.
The legislation would change a 1995 securities law that made it more difficult for plaintiffs to file in federal court, and creates a "safe harbor" to reduce legal liability if companies provide forward-looking statements about their earnings--a practice many high-tech firms already use.
"This country is blessed with strong and vibrant markets, and they function best when corporations can raise capital by providing investors with their best, good-faith future projections," Clinton said today in a statement.
"If firms know that they can rely on the Reform Act's 'safe harbor' for forward-looking information, they will provide the public with valuable information about their prospects, thus benefiting investors by enabling them to make wiser decisions," he added. "Thus, the uniform national standards contained in this bill will permit investors to continue to recover losses fairly attributable to reckless misconduct."
Proponents say the standards will protect the slew of public high-tech start-ups from being sued in every state, arguing that such suits have the potential to stifle the burgeoning computer industry.
Before cofounding TechNet, John Doerr, a partner with venture capital firm Kleiner Perkins Caufield & Byers, rallied the high-tech industry to defeat California's Proposition 211, a measure that would have relaxed restrictions on shareholder lawsuits if it had passed in 1996.