Experts Debate at Global Justice Forum Best Way to Reform Financial Markets

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New York, October, 21, 2009 -- More than a year after the financial-market meltdown, the tussle continues over whether regulation or litigation is the best way to achieve reform.

 

The recent Global Justice Forum held at Columbia Law School revealed why there are no easy answers.

 

The theme of this year’s session was “Global Litigation in a Post-Crisis Economic World.” And on the heels of last year’s financial crisis, the Ponzi scheme run by Bernard Madoff, along with the Tyco, Enron, and Worldcom scandals of recent years, the debate on how to clean up the financial markets has only gotten more vigorous.

Regarding regulation, “I do think it is an incentive for truth-telling,” said Merritt B. Fox, Michael E. Patterson Professor of Law, Nasdaq Professor for Law and Economics of Capital Markets, who moderated a panel on financial fraud.

 

 But he added, “Ideally, regulation would work better, but there are imperfections in the market for government services, as there are in the market for litigation.”

 

The view is somewhat different from the plaintiff’s bar, where Max Berger ’71, has an auspicious perch. As a name partner at Bernstein Litowitz Berger & Grossman, he has helped obtain five of the largest securities fraud recoveries in history.

 

“Needless to say I believe very strongly in the prophylactic effect of what I’ve been doing for almost 40 years,” said Berger, who serves on the Law School’s Dean’s Council.

 

The scandals behind companies like Enron and Tyco spurred passage of laws like the Sarbanes-Oxley Act, which tightened rules for public company boards and accounting firms. Still, fraud has remained a growth industry, Berger said.

 

“Financial fraud has been rampant,” he said. “Trillions of dollars in investment money has been lost. The financial world is on the brink of economic Armageddon while a few take the spoils.”

 

Bruce Greenwald, a professor at Columbia Business School, said the deterrent effect of tougher rules, lawsuits and more-vigorous criminal prosecutions, will only go so far.

 

“It will always happen again,” Greenwald said of financial fraud.

 

One reason, he noted: “The nature of financial-market behavior and the discourse around that behavior is inherently, completely divorced from reality.”

 

In essence, said Greenwald, people – even seasoned investors and money managers -- want to believe they are right, even though studies have found not even the most successful investor is correct more than 60 percent of the time. In turn, they are lulled into a sense of complacency, fail to perform due diligence and become more vulnerable to fraud.

 

“So, inherently, they’re always assuming they know much more than they do, and, in a sense, that’s radically important, because what that discourse does actually affects that reality,” he said.

 

The Global Justice Forum, held Oct. 15-17, also featured sessions on class-action suits, competition, and alternative dispute resolution. Among the panelists was George A. Bermann, Jean Monnet Professor in EU Law and Director of European Studies, and Hans Smit, Stanley H. Fuld Professor of Law. John C. Coffee, the Adolf A. Berle Professor of Law, delivered the keynote address that compared the U.S. and European models of class-action lawsuits.

 

Some 200 lawyers from four continents were registered for the sixth-annual Forum.

 

“The idea is to form a network of lawyers working together, particularly on the plaintiffs’ side,” said Robert L. Lieff, who sponsored the event with his San Francisco-based firm Lieff Cabraser Heimann & Bernstein.

 

“This time, with the help from Columbia and the faculty here, we were able to go beyond that. It was not just a plaintiff’s forum by any means,” Lieff added. “We’ve had lawyers from both sides. We had mediators. It’s just a fabulous way to exchange ideas and think about some of these complicated issues.”

 

Columbia Law School, founded in 1858, stands at the forefront of legal education and of the law in a global society. Columbia Law School joins its traditional strengths in international and comparative law, constitutional law, administrative law, business law and human rights law with pioneering work in the areas of intellectual property, digital technology, sexuality and gender, criminal, national security, and environmental law.

 

Visit us at www.law.columbia.edu.