Editors' Blog

Homeland securities worrying US investors

Posted 24/01/2007 by John Malpas

So it seems that the US firms cannot have their cake and eat it after all.

UK lawyers have long cast an envious eye across the pond to New York, where the litigation departments of the top firms are typically double the size of those in the UK. That is because litigation is more profitable in the US, making practices far better hedged than their London counterparts.

But this built-in advantage appears to come with some strings attached after all. A report commissioned by New York’s mayor, Michael Bloomberg, highlighting New York’s loss of market share in international financial services fingers the US’ legal system as a prime culprit for this state of affairs.

Unsurprisingly, the prime culprit is the prevalence of securities litigation. But the report also blames over-zealous prosecutors and the complexity of the US legal system. It cites a survey of senior executives, of whom just 15% favoured the US over the English legal system in terms of fairness and predictability. Eighty-four per cent of the chief executives said the UK was a less litigious place in which to live, with not a single one stumping for the US.

“The legal environments in other nations, including Great Britain, far more effectively discourage frivolous litigation,” says Bloomberg in the report’s introduction. “While nobody should attempt to discourage suits with merit, the prevalence of meritless securities lawsuits and settlements in the US has driven up the apparent and actual cost of business – and driven away potential investors.”

Along with clearer guidance for implementing the Sarbanes-Oxley Act, the report puts securities litigation reform at the top of its agenda for change.

Meanwhile, business leaders in the City of London are calling on people not to be complacent about London’s current success. City lawyers have long called for the construction of a properly-equipped commercial court befitting the key role played by the courts in providing the right legal framework for a successful financial services industry.

Long too have lawyers complained about the lack of recognition afforded to lawyers and judges for their role in underpinning London’s success. The Bloomberg report will provide useful ammunition in the continuing battle to win this recognition.