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Insurer groups oppose amending financial services bill

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WASHINGTON—A group of business, insurance and financial industry groups have asked Senate leaders to reject an amendment to the financial services regulatory reform bill that would expand securities class action liability.

In a letter sent Monday, the groups#&151;which include the American Insurance Assn. and the Property Casualty Insurers Assn. of America#&151;said an amendment by Sen. Arlen Specter, D-Pa., seeks to overturn the Supreme Court's decisions in Stoneridge Investment Partners L.L.C. vs. Scientific-Atlanta Inc. and Central Bank of Denver N.A. vs. First Interstate Bank of Denver N.A. The decisions limited the cases in which defrauded investors could seek recovery from third parties.

According to the groups, the Specter amendment under consideration by the Senate “would allow plaintiffs attorneys to bring a class action lawsuit against anyone who ‘knowingly provides substantial assistance' to a primary actor who violates the securities laws.”

“The amendment does not require that a defendant have ‘actual knowledge' that his conduct is assisting a fraud; rather, it requires only that the defendant have ‘actual knowledge of the conduct underlying the violation,'” according to the letter. “The provision would thus subject defendants to liability whether or not they have any idea that the conduct they are assisting is wrongful.”

The groups cited as an example a business that buys goods or services from a company that improperly accounts for those sales to inflate its income. The buyer “could be held liable for billions of dollars in damages so long as it is aware of the transactions#&151;even if the buyer does not know about the fraudulent accounting. That would impose a lower standard on private plaintiffs than the one that the (Securities and Exchange Commission) must meet for its aiding-and-abetting actions under current law,” the groups said in the letter.

Aside from the AIA and PCI, other signatories included the American Financial Services Assn., the American Tort Reform Assn., the National Assn. of Manufacturers and the U.S. Chamber of Commerce.