(MONEY Magazine) – Imagine a law that makes it much easier for crooks to swindle investors and far more difficult for the victims to sue to get their money back. A law so extreme that it would:

Allow executives to deliberately lie about their firm's prospects.

Prohibit investors from suing the hired guns who assist a fraudulent company, the so-called aiders and abettors, including the accountants, brokers, lawyers and bankers.

Ratify a court ruling that throws out any suit that isn't filed within three years after the fraud took place, even if no one discovers the crime until after that deadline.

And potentially force investors and their lawyers who lose a case to pay the winner's entire legal fees, if the judge later rules that the suit was not justified.

Sounds too radical to be real, doesn't it? Yet legislation that would do all this and more has passed both the House and Senate by overwhelming margins (325 to 99 and 69 to 30). It is now headed for a conference committee where the relatively minor conflicts are expected to be ironed out.

The more responsible members of Congress who backed the effort were looking for a way to discourage frivolous securities suits. But several powerful financial lobbyists and their pals ended up putting small investors in the crosshairs instead. At a time when massive securities fraud has become one of this country's growth industries, this law would cheat victims out of whatever chance they may have of getting their money back. For instance, had this law been on the books, thousands of fraud victims might not have collected anything, rather than the billions they rightfully recovered by suing the operators behind such notorious scams as Charles Keating's $288 million savings and loan swindle, the $460 million Towers Financial fraud and Prudential Securities more than $1.3 billion limited partnership hustle.

Take Bill Ayers, 53, a Vietnam War vet who runs a prosperous engineering consulting firm in Crystal City, Va. In the mid-'80s, he plowed more than $1 million into bonds issued by First Humanics, before realizing that the nursing-home chain was built on fraud. He wasn't alone. In all, at least 4,000 people invested more than $80 million in 21 separate bond offers. Despite all that money, Humanics declared bankruptcy in 1989, and the company head, Leo ("Lee") Sutliffe surfaced on his Florida yacht with the nursing homes' former interior decorator.

How did a sophisticated guy like Ayers get fooled? Simple, really. He relied on the company projections, which turned out to be phony, and on bond feasibility reports by Touche Ross (now Deloitte & Touche), which were shoddy. "In reality," says Ayers, "the accounting system was nonexistent." For example, in one case, Touche Ross counted closet space as patient rooms. Then to get the profit-per-room projections to actually work, at least one home slashed its daily food budget to less than $3 per patient.

When Ayers finally caught on five years later, he led a successful class-action lawsuit that ultimately was settled for $45 million from the accountants, lawyers and bank trustees. Sutliffe, meanwhile, got 15 months in federal prison for mail fraud and was fined $1 million.

"But I'd be out of luck under this new law," says Ayers. Sutliffe's lies about the chain's profitability and the bonds' 10% to 14% yields would have been protected. His aiders and abettors, principally Touche Ross, also would have been shielded. And before Ayers could have filed the class-action claim, he and his fellow plaintiffs might have been forced to post a prohibitive multimillion-dollar bond to cover the defendants' legal fees just in case the suit was later thrown out of court. What's worse, he would not have been able to sue in any event because he did not discover the fraud within the three-year time limit; in fact, the statute of limitations would have run out on nearly every Humanics' victim. As Ayers puts it: "This law will hurt the people who've already been hurt by the frauds."

So how could such misguided legislation get this far? It's an interesting tale that illustrates how thoroughly the 104th Congress has become the Lobbyists' Congress. Ironically, one of the original ideas behind this reform legislation last year was to increase the three-year statute of limitations imposed by an ill-advised Supreme Court decision. But after the Republicans swept to power, major political contributors, led by the Big Six accounting firms that are smarting over billion-dollar judgments against them in the S&L scandals, helped draft this legislation to attack what they called an "explosion" of frivolous securities suits. They got their way, despite the lack of evidence of any such explosion. The true measure of indiscriminate litigiousness--the number of companies sued each year--has remained relatively level for the past 20 years. What's more, 80% of federal judges, who are largely Reagan and Bush appointees, think frivolous suits are a minor concern.

In the final analysis, this legislation, which Sen. Alfonse D'Amato (R-N.Y.), for one, has hailed as "a big win for American consumers," would actually be a grand slam for the sleaziest elements of the financial industry at the expense of ordinary investors.

To make matters worse, this law will soon be followed by other G.O.P.-backed reforms that aim to reduce the information investors get while also curtailing securities regulation. Former Securities and Exchange Commissioner Rick Roberts, a Bush appointee, says he fears these initiatives could undermine our securities markets. "If you look at the whole picture, Congress is taking away the right to bring an action if there's a financial fraud; it's [cutting] the level of information investors receive; and, third, [it] will try to slash the SEC budget so there are no public remedies," Roberts told MONEY's Ruth Simon. "If I was an investor, I would be getting very queasy about plugging my money into the securities market."

But the financial fat cats haven't sung yet. There is still time to stop these reckless efforts, starting with this litigation reform bill. President Clinton's counsel, Abner Mikva, told MONEY's Peter Keating: "I think the President would not sign it, [but] we use the word 'veto' very sparingly around here." If you would like to join MONEY in urging the President to veto this litigation bill, please send us your thoughts, and we will relay them with our endorsement to the President and to key congressional lawmakers. Write to:

Protect Our Rights Money, Room 32-38 Time & Life Building, Rockefeller Center New York, N.Y. 10020

Or send electronic mail to: letters@moneymag.com