At the behest of financial industry and its lobbyists, Congress has been bent on a course to “reform” the investment laws.  Translated, this means passing laws making it more difficult for individual investors to sue securities law violators to recover investments lost through fraud or malfeasance.  One example is the Private Securities Litigation Reform Act, which can  prevent investors from relying on the investment fraud laws of their states in cases involving mass fraud.  The justification for this reform is that it is the lawyers and the victims of fraud who are destroying the capital markets.  What a bunch of bunk!  These so-called reforms are nothing more than a legislative grant of immunity for corporate wrongdoers.

To be sure, there are a handful of lawyers who abused the litigation system for their own personal gain, by doing such things as hiring professional plaintiffs and filing suit without first investigating the facts.  Some of those lawyers sit in prison cells today, where they belong.  Those bad actors represent a small fraction of those of us who bring cases to address clear wrongdoing that ruins the lives of innocent investors.

The fact is that private litigation is the cheapest form of regulation.  It does not cost the government a dime, and most often targets wrongdoers who escape scrutiny of state and federal regulators.  And, private litigation has its own built-in controls to prevent abuse.  Since most investors are represented on a contingency fee basis, it behooves investment fraud lawyers to study their cases carefully before filing them.  The reason is simple:  if they don’t win, they don’t get paid. 

Yesterday we learned that the government is proposing a $700 billion bailout of financial institutions which have used investor money to make poor bets that enriched stock brokers, mortgage brokers, brokerage firms, and their executives.  Litigation reform is not the only reason why this happened.  But the laissez faire attitude of deregulation certainly contributed to it, and litigation reform was a piece of that package.  Now that our government is forced to leave the taxpayers holding the $700 billion bag for Wall Street failures, it is time to recognize that greed powers Wall Street.  Individual investor rights need to be strengthened to include mandatory attorney fees and punitive damages in egregious cases.   Let’s call an end of the efforts to dismantle investor rights.

Who would have believed even a year ago that we would have witnessed the demise of so many Wall Street behemoths?  First Bear, then Lehman and now Merrill.  And the fallout is not over yet.  Even the mighty, invincible Goldman Sachs is showing cracks in its foundation.  The failures of these firms raise a myriad of questions.  How could these firms let themselves get here?  Why does the government bail out Bear, the bad boy bully of Wall Street, and let Lehman sink into bankruptcy?  What does this foretell of the future of the brokerage industry?  Are we heading toward a world in which a few Uber-Banks own all the major broker-dealers and your bank teller tries to get you to sit down with your Merrill broker (who as a table right in the bank) every time you deposit your paycheck?  Is the loss of diversifiation of stock broker firms as dangerous as a lack of diversification in a portfolio?

All legitimate questions to be sure.  But the more fundamental issue, which we have heard no one discussing, is this:  Isn’t it ironic that these stock brokerage and investment firms, who afer all  have charged us billions of dollars to give their expert advice on managing our investments and planning for our retirements, cannot even keep themselves solvent?  How can these firms claim to be the masters of the universe, how can they claim to have investment advisory expertise, if they can’t even keep themselves out of financial ruin?  It is something worth considering the next time that a brokerage firm tells you that they have the resources of their entire firm behind them.