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Pity The Lawyers

Publication Date: 
June 14, 2007
Neil Weinberg

Professor Joseph Grundfest is quoted in a Forbes story about the decline of securities class actions:

Many observers have pinned the drop-off on recent indictments of partners at Milberg Weiss & Bershad, the top class-action plaintiff law firm. Grundfest scoffs at the notion. The barriers for filing claims are low for other law firms, and there is no evidence they are pulling punches while corporate crooks get a free pass, he said.

Instead, Grundfest attributes the decline in class actions to what he calls the "less fraud hypothesis"--namely, that corporate executives are filing more honest financial statements than in the past because the penalties for cooking them have increased. What is more, the government is exerting far greater pressure on corporations to "throw wrongdoers under the bus."

"The corporation has no body to kick and no soul to damn, so when the government finds fraud, it's going after people that companies used to protect," he said. The tougher stance has helped alleviate what many corporations viewed as an epidemic of frivolous and debilitating litigation, but according to Grundfest it has also opened the door to another form of abuse--overzealous government prosecutions, an area he posits will become an increasingly big issue in coming months.