The Securities and Exchange Commission is beginning to move to protect accounting firms from investor lawsuits that accuse them of fraud, according to published reports.The New York Times reported that last week, the SEC filed a brief in the Supreme Court asking the justices to consider the adoption of a legal standard to make it harder for shareholders to win judgments in fraud lawsuits against publicly traded companies and their executives.
Meanwhile, SEC chief accountant Conrad Hewitt was speaking to securities lawyers at a Washington conference, saying that the agency was considering ways to protect accounting firms from large damage awards in cases brought by investors and companies. Hewitt said that he saw many frivolous lawsuits during his time as an Ernst & Young managing partner, and that a handful of European countries had already found ways to limit auditor liability. The European Commission has also issue a policy paper suggesting that damage claims protections should be afforded to the biggest firms.
Some countries have put a monetary cap on legal liability, while others have adopted limits based on the size of the client corporation, or the fees generated by the company being audited.
In November, the Committee on Capital Markets Regulation, a panel of business executives and legal experts, proposed limits on shareholder lawsuits and caps on accountant liability, while the Big Four have also embarked on a lobbying campaign to reduce their liability.
The issue before the Supreme Court is the interpretation of a provision of the Private Securities Litigation Reform Act of 1995 that sets out what investors must contend in a fraud lawsuit to prevent the case from being dismissed.
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