By Hailey Konnath

Law360 (November 6, 2020, 10:09 PM EST ) The U.S. Chamber of Commerce has implored the U.S. Securities and Exchange Commission to limit securities litigation stemming from the COVID-19 pandemic, telling the agency in a rulemaking petition that plaintiffs attorneys are likely to seize on pandemic-related events to inundate companies with questionable litigation.

The U.S. Chamber Institute for Legal Reform and the Chamber's Center for Capital Markets Competitiveness said in their petition that the securities class action system "is plagued with serious problems." That's why, 25 years ago, Congress enacted the Private Securities Litigation Reform Act, which aimed to limit frivolous securities suits, they said.

Still, there's been "an explosion of securities class action filings in recent years," the Chamber said, adding that one driver of the surge has been event-driven lawsuits filed when a public company's stock declines after a negative event.

"These lawsuits are often of dubious merit, but some plaintiffs' lawyers seek to leverage the expense of litigation, the monetary exposure, and the reputational harms to companies in order to extract a quick settlement," the agency said.

COVID-19 is a disaster unparalleled in recent times, and securities class actions based on the pandemic have already been filed, "with many more to come," the Chamber said.

"The PSLRA provided for just this sort of emergency: Congress gave the commission the authority to expand the PSLRA's statutory safe harbors and create additional exemptions from liability when appropriate," it said. "The commission should exercise that authority and act without delay to place reasonable limits on securities litigation arising out of the COVID-19 pandemic."

The Chamber pointed to a number of ways in which the securities class action process could be "abused" to bring unjustified suits linked to the pandemic. For one, suits could be based on allegations that a company made pre-pandemic statements indicating that it was prepared for emergencies and that those statements wound up false given the pandemic's effect on a company, according to the petition. As another example, the agency said suits could also be based on a company's post-pandemic statements about the prospects of resuming business that don't materialize because of "fast-moving changes to the health and business environment."

Though plaintiffs attorneys have pledged not to bring reflexive COVID-19-related securities actions, at least 20 have been filed to date, the chamber said.

Specifically, the SEC should bar or limit liability for statements about a company's plans or prospects for getting back to business, resuming sales or profitability, or other statements about the impacts of COVID-19, per the petition.

The commission should also require inclusion in financial statements a statement reminding readers that a number of the elements of financial statements are determined "on the basis of projections of future business or market conditions," the Chamber said. Consumers should be reminded that "due to the tremendous uncertainties flowing from the pandemic and its effect on the economy, there is a greater possibility of variation than in the past," it added.

"This limitation on liability would not necessarily preclude all litigation, but it would address unjustified financial statement-based liability by limiting circumstances in which a lawsuit could be filed," the Chamber said.

Representatives with the Chamber and the SEC didn't immediately return requests for comment late Friday.

--Editing by Emily Kokoll.

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