Beefed-Up Securities Law WIll Empower Shareholders

Mitsubishi Motors Corp. could easily become the target of shareholders' lawsuits under the revised Securities and Exchange Law. The automaker, which failed to disclose to investors risk information about defective vehicles, can now be sued for compensation by its shareholders under the new law.


The revised law was enacted at the ordinary Diet session closed in June and will take effect in December. It contains a provision protecting investors damaged by stock price falls due to a company's illegal activities. The law will subject companies to heavier civil liabilities for hiding corporate information as well as help investors file damage suits more easily.


Under the previous system, Japanese investors had little recourse for loss compensation. For example, U.S. investors brought a class action suit against Sony Corp., after suggering massive losses from a stock price that plunged after the company took a huge one-time charge of more than 200 billion yen ($1.8 billion) to amortize the goodwill it bought from a U.S. movie company. Sony settled in 1997, paying US$12.5 million to the plaintiffs. But all the money went to US investors, while Japanese investors were left empty-handed.


Japanese investors who sued the former Yamaichi Securities Co. (which failed in 1997) for damages, but in
2001 the Tokyo District Court issued a verdict against the plaintiffs. Under the former law, even if the amount of damages could be computed, investors were required to verify that they acquired a company's shares after being influenced by fraudulent information. These legal obstacles will not exist in the new law, under which there is no need for investors to attest to the fact that they bought shares after seeing forged information.


But the Financial Services Agency sees little improved chance of investors receiving damage compensation under the new law, since the class action filing system is not established in Japan. Even so, the new law's enactment marks a big step forward to protecting burned investors who bought shares of a "defective company" just as consumers who purchased defective products are protected under the product liability law.