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litigation and disclosure August 22, 2008

Posted by Bradley in : Uncategorized , trackback

On the face of it, it would seem that investors might reasonably want to have reliable information about the likelihood that securities issuers would incur significant litigation-related losses. But FASB’s Exposure Draft on Disclosure of Certain Loss Contingencies, which proposes some changes to the current approach to this issue, has been attracting a lot of flak. The big accounting firms don’t seem to like it much. SIFMA’s comment letter on the exposure draft raises some complex issues about the relationship between litigation and disclosure, and clearly shows the influence of the chief counsel and litigation counsel of financial firms (listed in the letter), members of SIFMA’s litigation committee, who were involved in the production of the comment letter. The letter claims to be particularly deserving of notice because the firms represented are both users and producers of financial statements. One concern is that disclosure would interfere with the ability of firms to defend themselves against law suits. Another is the claim that the new approach would weaken attorney-client privilege. But the claim I find most troubling is that litigation outcomes are so unpredictable that more detailed disclosures about litigation contingencies could only be misleading and might be worse than no disclosure at all. The letter makes the practice of law sound like some sort of mysterious and occult endeavor, rather than a professional activity.

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