For the first in what will no doubt be a continuing series, this post will spotlight a policy proposal the Republican Party wants, but won’t get, because they’re too proud to negotiate, and instead expect legislation to spring, full-formed, from Glenn Beck’s head.
Good, bipartisan ideas are the necessary casualties of the Republican’s scorched earth policy, which treats the legislative process as a single-subject referendum on “socialism” or “freedom.” For example, while the parties can disagree about overall reform methodology, there’s some reform that just has to be done to make sure that federal law keeps abreast of private sector developments. This is one of those cases.
The Securities and Exchange Acts stand as two landmark victories of the late Progressive Era, the importance of which no fair mind can question. In simple terms, the Securities Act (’33 Act to practitioners) requires companies to register with the Securities Exchange Commission (“SEC”) before engaging in a public offering; and the Exchange Act (’34 Act) penalizes fraudulent conduct through its power Rule 10b-5, and the attendant private right of action, a judge-made rule (“activism!”) that lets private citizens sue companies for fraudulent conduct, thus taking some of the burden off of public enforcement. The international reach of the ’34 Act’s antifraud provisions have never been clear, and they’ve never needed to be. Until now.
Lately, Foreign plaintiffs are using American fora, and our antifraud rules, to attempt to maintain fraud claims based on the Foreign sale of stock in Foreign companies. These so-called “foreign-cubed” (“f-cubed”) suits let, say, European plaintiffs use more generous American law to win huge recoveries they couldn’t otherwise gain against major companies with only limited connections to the United States. For example, many European courts don’t allow class actions; American courts do. If a foreign company maintains an office in the United States, and that office handles a fraudulent document, it’s almost worth the massive cost of litigation to just try a claim in the U.S. courts, because the reward is so great. Needless to say, foreign companies don’t like this rule, and routinely threaten to leave our shores altogether unless someone does something to protect them from claims that, while potentially meritorious, bear no real connection with America or American investors. They’ll never make good on the threat, but you know, they’ve got a point. This is a problem.
But it’s one we could solve, if the Republicans could learn to cooperate. The last two drafts of the financial reform bill included a legislative “fix” for this problem — and one that’s gotten more generous to foreign companies as time goes on. The last draft utterly eliminated any private right to sue a foreign company for foreign-centered fraud. We can question that balance, but it definitely favors the corporate world, and provides the kind of black-and-white certainty that a pending Supreme Court case cannot.
Apparently, this is the type of key government reform — clarifying opaque laws — that the GOP is willing to pass on, even though it directly favors their core corporate constituency. So we’ll, again, wait out a filibuster threat.