California's Prop. 211 Spurs National Fund Raising

The infotech and legal industries are spending millions to win votes in an upcoming ballot in California

An impending ballot in California has prompted a massive, nationwide fund-raising race between infotech executives and trial lawyers, each trying to sway California voters with tens of millions of dollars in TV advertising.

The Nov. 5 ballot initiative, called Proposition 211, would modify California's laws to ease lawsuits against companies suspected of fraudulently manipulating their stock price. Lawyers backing the proposition say it is needed to deter infotech executives from trying to defraud stock buyers by artificially raising their stock price.

Infotech executives opposing say Proposition 211 would allow lawyers to threaten companies and executives with trumped-up fraud lawsuits in the hope of winning a lucrative out-of-court settlement. Also, opponents of Proposition 211 say the measure would allow lawyers to sue companies outside California, even if only one company share is owned by a California citizen.

"Out-of-state companies should care [about Proposition 211] because it affects anyone who has but one share in California," said Michael Timmeny, a Washington-based vice president for domestic affairs at the American Electronics Association.

"That's ridiculous... it's scare tactics," said Sean Crowley, a spokesman for the pro-211 Citizens for Retirement Protection and Security, based in Los Angeles. Although the measure "doesn't expand the jurisdiction of California courts," 70 percent of funding for the anti-211 campaign comes from outside California, he said. Those companies include securities dealers, accountants and infotech companies eager to minimize their liability in fraud cases, he said.

To defeat 211, the AEA is working with several other organizations, including the Sacramento, Calif.-based Taxpayers Against Frivolous Lawsuits, to raise up to $40 million for the anti-Proposition 211 campaign, Timmeny said. On Oct. 18, the association will hold a fund raiser at which several infotech executives are scheduled to make a pitch to local infotech executives.

"They are looking for checks with a lot of zeros on them" said Bruce Hahn, a Washington-based lobbyist for the Computer Technology Industry Association. Among the speakers expected at the event are Edward Bersoff, president of BTG Inc., Vienna, Va., and Chuck Stein, chief of Netrix Corp., Herndon, Va. The AEA tried to hold the meeting Sept. 20, but the meeting was canceled a few days beforehand because not enough infotech executives had signed up to attend, said one participant.

"There was a great deal of interest," but the event was canceled because executives didn't have enough warning to adjust their schedules, said Timmeny. He declined to say how much money he hopes to raise from the Oct. 18 meeting.

Crowley would not disclose how much money the pro-211 side was seeking, but added that it was coming from law partnerships around the country. "We'll be competitive... [but] we certainly don't have $20 million," he said.

To win the campaign, both sides in the debate are amassing dollars, endorsements, favorable polls and whatever advantage they can find from wherever possible. They are also arguing that each is supported by out-of-state interests.

For example, the industry-backed anti-211 coalition is arguing that the proposition is backed by New York lawyers and would damage many California-based infotech companies and drive others out of the state. The anti-211 side also is showcasing an anti-211 statement by President BiIl Clinton, who had earned much criticism from infotech executives when he vetoed Congress' December 1995 reform of federal securities-litigation rules. Congress promptly overrode the veto, establishing the restrictive law that Proposition 211 is intended to change.

On the other side, Crowley's pro-211 side is highlighting the out-of-state funding provided by accountant firms and the New York-based Securities Industry Association, which has contributed roughly $1 million to the anti-211 campaign.

Poll numbers are another weapon in the battle. The anti-211 Taxpayers Against Frivolous Lawsuits released a statement Sept. 17 saying that "Proposition 211 looks to be headed toward certain defeat by a more than 2 to 1 margin among those who are aware of the initiative."

But the same poll shows a 41-27 split favoring the pro-211 side once the voters read language included on the ballot measure, despite the anti-211 side having spent $4 million on TV ads since July, said Crowley. "We have run zero ads, and we won't be running any until October," he said.

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