Time Warner's Money magazine claims to be a publication for
serious investors. But lately Money seems to be fronting for an
unholy alliance of anti-business activist Ralph Nader and a small
group of the nation's most predatory trial lawyers. While dozens of
liberal Democrats joined Republicans last December in passing
securities litigation reform legislation in the only override of a
Clinton veto, Money aligned itself with Nader's camp against the
popular reform bill.
For years, "strike suit" securities lawyers have reaped lavish
incomes targeting advanced technology and other growth companies.
When stock prices drop suddenly, the lawyers typically swoop down
and extract multimillion-dollar settlements. The system has made it
so costly for companies to defend themselves against baseless
charges that many are forced to settle out of court.
Over the past four years, settlements in such suits have cost
investors more than $2.5 billion, one third of which -- $825 million
-- went straight into the pockets of the "strike suit" lawyers.
The securities bar helped finance Ralph Nader's high-profile
campaign against the federal legislation to curb abusive securities
suits. Then President Clinton -- whose career has been largely
financed by trial lawyers' largesse -- vetoed the legislation.
Scores of liberal Democrats, including Sen. Edward Kennedy,
Democratic National Committee Chairman Sen. Chris Dodd, and
California Rep. Vic Fazio, joined Republicans to override the veto.
They found support in much of the media, including a Washington Post
editorial charging Clinton had "caved to the trial lawyers' lobby."
But Nader, President Clinton, and the trial lawyers had a
reliable ally in Money magazine. Money's coverage was brazenly
one-sided. In four of the five monthly editions preceding passage of
the bill, managing editor Frank Lalli used his column to inveigh
against the legislation. Money's fixation is all the more notable
because Lalli's column is the only opinion piece each month. The
magazine even ginned up a letter-writing campaign in support of a
veto. During the year of congressional debate on the bill, Money
published no information about the benefits of the legislation, just
Month after month, Money's opinion campaign broke the rules of
honest advocacy. Persistently, the magazine published false or
misleading characterizations of the reform bill. For instance: Money
falsely charged that the bill would "allow executives to
deliberately lie." In fact, the bill specifically outlaws executives
from making knowingly fraudulent statements. The bill does create a
limited "safe harbor" for good-faith disclosure of forward-looking
financial information. A Washington Post editorial praised the "safe
harbor" for shielding companies "from a style of legal assault that
is not far from extortion."
Money wrongly complained that "investors who sue and lose could
be forced to pay the winner's court costs." The bill does not impose
a "loser pays" or "fee shifting" provision. Instead it takes a
modest step to toughen existing federal rules against frivolous
claims, whether they are made by the plaintiff or defendant.
Money put things completely backwards in saying "accountants who
okay fraudulent books will get protection." In fact, the bill gives
the Securities and Exchange Commission new power to act against
accountants, lawyers, and others who assist securities fraud.
The magazine refused to publish letters to the editor in support
of the reform bill. It is unclear why a publication that professes
to be a serious investors' magazine allowed only one side's
arguments to be heard on an important issue for investors. Whatever
the motive may be, surely it is not a serious search for the truth.
Securities litigation reform remains a hot political item.
Securities lawyers are spending millions of dollars on a California
ballot initiative that would effectively negate the new federal
reform law's effect in that state and across the nation. Ralph Nader
is campaigning ardently for the trial lawyers' initiative.
Those who keep Money magazine in business should take serious
stock of its editorial policies and practices. Time Warner
shareholders and executives -- and Money's readers and advertisers
-- are in the best position to decide what editorial opinions on
public policies best reflect their values. But clearly everyone is
done a disservice when a publication attempts to justify its
editorial opinion through falsehood and distortion.
Dr. Hunter is chief economist of Empower America and former chief
of staff of the Congressional Joint Economic Committee.