The SEC is looking at a new way to resolve costly class-action lawsuits from shareholders. One possibility is to switch to an arbitration system, much like investors use if they have a conflict with a broker. With the dollar value of settlements related to shareholder lawsuits at an all-time high, many worry that the litigation may be frightening companies into listing their securities in other countries. According to the Wall Street Journal, (subscription required) "Critics of these lawsuits say multimillion-dollar settlements have lined the pockets of lawyers at the expense of shareholders, created burdensome costs, and frightened off companies that might otherwise have chosen to list their stocks in the U.S."
Of course, any suggestion of moving away from class-action lawsuits will draw the ire of trial lawyers, but I would be interested in hearing more about resolving disputes through arbitration. As I wrote last week, lawsuits filed against public companies divert resources away from the operation of the business. This hurts the current shareholders, and these lawsuits tend to generate very little for the plaintiffs. On average, they hurt the current shareholders, hurt the company, and do little for the people suing. Of course, they do make the lawyers a lot of money.
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