Crunch time in California

Directors and advisers face ruinous claims. Richard Halstead reports

Company directors in the US, and overseas companies with significant interests in California, will face potentially ruinous litigation if the state votes in favour of a proposed law in the US elections on Tuesday.

The legislative proposal, known as Proposition 211, would allow militant Californian shareholders to claim punitive damages from a company's directors and officers if they could persuade a state court that the company issued misleading financial statements. Auditors and financial advisers would also be liable.

The measure is the creation of William Lerach, a San Diego attorney who has led the "strike suit brigade", a group of lawyers who make large sums of money by leading shareholder suits against companies. Most companies cave in and settle rather than endure a prolonged and expensive court battle.

Opponents of the bill, who include big high-technology companies based in Silicon Valley and Wall Street investment banks, say that Proposition 211 will make such actions even easier to launch and much harder to defend. They have spent an estimated $35m (pounds 22m) on lobbying and advertising to defeat the measure.

They have been led by Intel Corporation, which last week said it would not make any more forward-looking trading statements until the issue was resolved.

Other commentators, led by former presidential candidate Steve Forbes, have labelled the proposition "old-style extortion from mobsters", which will "destroy Silicon Valley faster than the Independence Day aliens". Both Bob Dole and President Bill Clinton have said they oppose the measure.

Much of the battle between the two sides centres on what Proposition 211 would actually do if passed. The answer, according to the pro lobby, is that it would merely offer investors protection against misleading financial statements by companies and their advisers.

"High-technology companies may be in a volatile market, but that does not give them the right to break securities laws," said Jeff McCord, a Washington lobbyist employed by the pro-211 faction. He dismissed the actions of Intel and other electronics companies as "scare tactics".

Opponents challenge Mr McCord's interpretation and contend that the measure would reduce investors' ability to get useful financial information out of a company.

"We are not grandstanding here," said Chuck Molloy, head of investor relations for Intel. "If we make a quarterly forecast, and it is inaccurate in the tiniest way, and the market marks our shares down, we will be liable."

In the end, Proposition 211 may be defeated by ignorance among the Californian electorate and the $35m spent by the Silicon Valley-Wall Street alliance - much of it on emotionally-charged television advert- ising that attacks "bloodsucking" lawyers and lobbyists.

According to a recent survey conducted by the Field Poll Group, 18 per cent of California voters said they would vote against the proposition and 12 per cent for, with 70 per cent saying they were unaware of the measure or undecided.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links