California bankers have mobilized their forces against a ballot initiative that would make it easier for investors to sue companies for fraud.
Those opposed to Proposition 211 claim California business, including the banking industry, could suffer about $1.5 billion a year in additional legal expenses if the initiative is passed in November.
"We generally don't take a position on these things unless we feel there is a direct effect on the company and on the economy," said Peter Magnani, spokesperson for BankAmerica Corp. "We feel this is a very important issue."
California bankers are worried about Proposition 211 because it would expand the scope of 'aiding and abetting." This could make any entity - such as a bank, brokerage, or accounting firm - that has a relationship with a company charged with fraud also vulnerable to those charges.
The proposition would also prohibit companies from indemnifying their directors or officers for legal expenses. This would make it difficult for banks to find people to serve on their boards, bankers said.
"Why on earth would someone put their entire net worth at risk?" said Gregory O. Wilhelm, director of government relations for the California Bankers Association. "You have to ask if someone is qualifed to become a director if he's willing to take on that kind of risk."
In addition, the initiative applies specifically to any losses associated with pension funds or retirement savings. The sale of mutual funds or individual retirement accounts by banks would be fraught with new dangers, bankers said.
BankAmerica Corp. has given $175,000 to a group, called Taxpayers Against Frivolous Lawsuits, that is fighting the proposal. Wells Fargo & Co. said it contributed $55,000 and plans to give more. Both banks have representatives serving on the group's 20-person steering committee.
"This is probably the most onerous, negative proposition that has ever been placed on a California ballot," said John C. Dean, chief executive of Silicon Valley Bancshares, a $1.7 billion-asset bank based in Santa Clara. "It's antigrowth, anti-initiative, and it will cost jobs."
The push for Proposition 211 is being led by San Diego lawyer William Lerach, who has made millions from fraud suits that mainly target Silicon Valley's high-tech industry. Supporters of the ballot initiative say it would make it easier for investors, particularly senior citizens, to recoup their losses from what they call the pervasive business fraud occurring in California.
"If all these class action cases are frivolous then why are the judges certifying them?" said Jeffrey R. McCord, an adviser to Citizens For Retirement Protection and Security, the main activist group in favor of the proposition.
The issue has national implications because the proposal would make it possible to circumvent the federal law enacted last December that significantly curbed shareholder lawsuits. Proposition 211 would apply to any company in the country that happens to have a single shareholder who resides in California.
"We are very much against" Proposition 211, said Lorna Doubet, a spokeswoman for Wells Fargo. "It would make California home to abusive lawsuits against any company that has a presence or even a shareholder here."
Both President Clinton and Republican challenger Robert Dole last month spoke out against the proposition, and Nasdaq and the American and New York stock exchanges have all publicly opposed it, contributing a combined $520,000 to the anti-211 campaign.
The state's Democratic Party has endorsed the proposal.
Mr. Dean of Silicon Valley Bancshares spends about 80% of his time fund- raising and helping to organize efforts for the campaign against the proposition. About 20% of the bank's business is with Silicon Valley's publicly traded high-tech companies, which have been particularly hard hit by such lawsuits in the past.
Since midsummer, opponents of Proposition 211 have blanketed the state with advertisements. One television ad shows a horde of smiling, well- heeled lawyers landing at a California airport and then being whisked away in limos, implicitly to reap their riches in the state. The voice-over warns of a "lawsuit gold rush."
Recent opinion polls on the issue are mixed. Some show voters favoring Proposition 211 by as much as 10 percentage points, while others show just the opposite.