You're missing my point. They make one be the fall-guy for all their actions......then it's business as usual.

No it's not. They are watching companies like hawks now AND they just passed all kinds of new accounting laws. So no, it's not business as usual. The new guy probably dislikes forcible anal rape as much as his predecessor.

You do have a point (SOX). Forgot about that.

You know what's interesting about SOX, the IT industry is modeling their standards based on SOX standards, modified slightly, now (as well as the emergence of ITIL, but that's a whole different conversation...).

:)

I dug up some numbers. These are rough numbers, mostly because I only had a little time to spend on this.

In the last few years, there have been roughly 225 securities class action lawsuits filed per year. Settlements of securities class action lawsuits have totaled around $3-4 billion per year, with a few mega-cases accounting for about half of the total (for example, the WorldCOM case was $2.6 billion of the $5.5 billion total for 2004). Attorney's fees are a percentage of the settlement, and must be approved by the court. For the run-of-the-mill actions, attorneys' fees are often in the range of 20-30% of the settlement, but for the largest cases (e.g. WorldCOM) attorneys' fees are a much lower percentage, often 5-6%.

So I'll very roughly estimate that, over the past few years, private securities class action lawsuits have generated annually about $600 million (= $2 billion x 5% + $2 billion x 25%) in attorneys' fees and about $3.4 billion (= $4 billion - $600 million) in recoveries for investors.

On the governmental side, in each of the years 2004 and 2005, the SEC recovered about $3 billion for violations of securities laws. As I said earlier, the SEC's budget was about $900 million. The agency has about 4,000 people.

There is a major difference in focus between the private and government aspects of securities enforcement. The private lawyers focus primarily on the issuers of securities (the public companies). The SEC's enforcement actions tends to focus more heavily on the securities industry (mutual funds, investment banks, broker-dealers, auditors).

So, we could probably double or triple the size of the SEC staff and budget, have government take over the entire role of securities law enforcement, and eliminate the role of private enforcement. That would be the European approach to things, to build a giant public agency.

I'm not sure why that is better than the mixed public-private model we have now. I think private companies do most things efficiently, when they have a financial incentive. Private lawyers will always be aggressive, while the SEC is a political entity and subject to political pressure. Indeed, the SEC had to be forced into many of its biggest enforcement cases in the past few years, by Elliot Spitzer (New York AG) who exposed the frauds first and essentially humilated the SEC into acting (the mutual fund market-timing cases were one example).

Bottomline, I think the system we have of both private and public lawyers enforcing the securities laws works okay. The private lawyers seem at least as efficient as the SEC, in terms of the recovery/cost ratio. They could be made even more efficient, if Congress modified some of the laws concerning attorneys fee awards - I do agree the current system could be improved. The private lawyers save the US taxpayer from having to fund a $2+ billion SEC budget and a 2X larger SEC staff.

Background:

http://securities.stanford.edu/Settlements/REVIEW_1995-2004/Settlements_Through_12_2004_PR.pdf

http://www.ca3.uscourts.gov/classcounsel/Witness%20Statements/grundfest2.pdf

http://www.stockbroker-fraud.com/citigroupsettles.htm

http://www.sec.gov/about/annrep.shtml

Oh, here's some vaguely interesting stuff. Much of the data on the private securities litigation industry is supplied by Cornerstone, a defense-side litigation consultant. I was offered a job there, but chose to go into the securities industry instead. I've been interviewed by an SEC investigator, had to produce all my notes and emails on a stock that I was covering for my firm. Nothing came of it, but it wasn't a fun process. Finally, I've seen quite a few companies, some of whose stocks I cover, get caught cooking the books, in little and big ways. The shareholders really get hurt - for the stock to lose 30% of its value is not uncommon.

I have no problem with private enforcement of security law. My issue is when it originates with an attorney, not with the plaintiff.

Do you not think shareholders are entitled to attempt to recoup their losses as a result of shady practices?

What if you were a shareholder? Too bad, buddy?

Suppose you personally own $50,000 of Company X's stock, when the company's accounting shenanigans are exposed the stock drops 30%, and your loss is $17,000. A top-flight securities lawyer's time costs around $400/hour. Fees for the expert witnesses and consultants needed to support a securities action can easily be $200K. So - tell me how you plan to sue Company X?