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Stock Fraud Suits Plummet

Publication Date: 
January 03, 2007
Source: 
The Mercury News
Author: 
Scott Duke Harris

This article compares last year with preceding years of class-action activity. It contains a bar graph and the following excerpts including quotes by Professor Grundfest:

 

Even so, Stanford law Professor Joseph Grundfest, director of the clearinghouse, interpreted the precipitous drop in class-action suits as a validation of the aggressive "cooperate-or-else" approach by the Securities and Exchange Commission and Department of Justice against white-collar fraud -- not simply a tactical switch by the plaintiffs' bar.

"It seems to me that fewer cases are being filed because there's less fraud," said Grundfest, a former SEC commissioner. Boardroom culture, he said, has changed in the wake of post-Enron legal reforms and the SEC's hard-nosed enforcement. "Today executives know if they are accused of fraud, the probability of them being terminated is much higher than it was before."

The SEC's "cooperation doctrine," Grundfest said, requires directors and officers of companies suspected of wrongdoing to conduct internal investigations and fully disclose their findings with authorities. In exchange, the SEC typically focuses on the actions of individuals rather than the corporate entity. Such was the case with Brocade Communications; three former executives were charged in 2006 with rigging stock options while the company itself was spared.