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California Votes Down Proposition 211

V oters in California rejected an initiative on the November 1996 election ballot that would have increased the rewards for class-action securities lawsuits. The Retirement Savings and Consumer Protection Act, or proposition 211, was turned down by 74% of California voters. The proposition had threatened to nullify the reforms achieved by the passage of the Private Securities Litigation Reform Act of 1995 and would have had far-reaching effects on all U.S. publicly traded companies and their CPA firms.

Proposition 211 would have allowed plaintiffs’ lawyers to put together class-action claims similar to Securities and Exchange Commission 10b-5 class actions with no statute of limitations and no limits on lawyer’s fees. Abusive securities class-action suits, principally under the Federal Rules of Civil Procedure, were sharply curbed under the 1995 reform act. The initiative would have affected all U.S. companies with shareholders in California.

“This was an important victory for the profession,” said Andrea R. Andrews of Price Waterhouse in Washington, D.C. “It reaffirms the protection under federal legislation and sends a message to other states considering ballot initiatives like proposition 211 that it would be both costly and futile.” Speaking at the American Institute of CPAs Eighth Annual Conference on the Securities Industry, Mario M. Cuomo, former New York State governor, said the vote against class-action lawsuits revealed that Americans were associating their own welfare with the financial well-being of corporations. “This victory was the product of a well-focused effort by the business community and the accounting profession,” said Cuomo.

Proposition 211 prompted the costliest campaign ever over a California ballot initiative. The measure was backed primarily by lawyers who file class-action suits and opposed by Silicon Valley companies and the accounting profession. Spending had reached $40 million by October-proponents had spent $9 million while opponents spent $31 million.