Monday, October 28, 1996
WASHINGTON - Californians will vote Nov. 5 on a ballot measure
that industry and financial community leaders warn would have profoundly negative
impact on the biotechnology industry if it passes.
Biotech CEOs, venture capitalists, sellside analysts, and attorneys
contacted last week by BioCentury also concur that passage of Proposition 211,
the "Retirement Savings and Consumer Protection Act", would affect companies,
investors and shareholders nationwide.
The ballot initiative was crafted by San Diego attorney William
Lerach and other plaintiff attorneys who specialize in class action suits against
public companies. It declares that "in order to protect the retirement savings
of all Californians, it is necessary to require full disclosure of material
information that affects the value of securities or individual savings" and
to insure the right of citizens to sue to punish perpetrators of fraud that
result in the loss of value of pension funds, IRAs or other retirement nest
Specifically, Prop. 211 provides the basis for lawsuits by
individual investors whose retirement accounts lost value due to alleged stock
fraud, and puts the burden on the accused companies, executives and directors
to prove that the investor would have acquired the securities despite the purportedly
Prop. 211 includes provisions that effectively would eliminate
the federal "safe harbor" for forward-looking statements; prohibit companies
from indemnifying directors and officers; and make officers, directors and potentially
individual service providers subject to personal liability in shareholder fraud
cases. Unlike federal law, which limits damage awards, Prop. 211 includes no
guidelines or limits on the amount of civil penalties that courts can impose
on defendants who lose such suits.
Other measures would especially benefit plaintiffs lawyers,
including prohibitions on restrictions on attorney-client fee arrangements.
(see A6 for excerpts from the text of Prop. 211).
Opponents of the measure warn that passage of Prop. 211 would
result in the mass exodus from boards of directors; the stanching of funds to
biotech companies; and the stifling of information about clinical trial results
or company plans of any sort.
A Los Angeles Times poll published last Friday indicated that
52 percent of voters opposed the measure. Supporters of the proposition, however,
have launched a TV advertising campaign, and are confident they can convince
voters that Prop. 211 will protect the rights and life savings of individual
investors, especially the elderly.
Indeed, the American Association of Retired Persons (AARP)
is one of the few influential national political organizations that endorses
211. TV ads in favor of Prop. 211 depict elderly individuals who have allegedly
lost their life savings as a result of stock fraud. The text urges citizens
to vote for the measure as the way to protect their life savings.
One measure of the importance of Prop. 211 is the fact that
in an election year, both President Clinton and Bob Dole oppose it. Other odd
bedfellows in the anti-211 camp include Republican Gov. Pete Wilson and Democratic
Sen. Dianne Feinstein.
What would happen
Robert Curry of The Sprout Group said "the impact of Proposition 211 would be so far reaching that is hard to figure out all the ramifications. Several things obviously will happen. There will be a fleeing of board