Yet in America there is a practice that the Sokaiya would delight in. Our legal system, which is wonderful in most respects and is the pillar of the freedom and prosperity our country enjoys, has imperfections. It seems to bless payments extracted from corporations in what are referred to as "strike suits." A strike suit is an abusive and meritless action, brought by opportunistic lawyers in order to extort money from corporate defendants. Lawyers who bring these suits frequently are awarded their fees and expenses when the corporate defendant decides that it is more economical to settle the case than to fight it.

The Gabelli Equity Trust is trapped in the vortex of this imperfection that exists in our system.

Let us explain:

On February 10, 1998, The Gabelli Equity Trust filed a Registration Statement (referred to as a Form N-2) with the Securities and Exchange Commission for the issuance of preferred stock. The N-2 specifically stated that the preferred stock to be issued contained a mandatory redemption feature. This feature was designed to ensure that the preferred shareholders, voting as a class, could not block the common shareholders from voting to open-end the Trust, in the event that a majority of the common shareholders sought to do so. Nevertheless, a law firm, on behalf of a shareholder, who owned shares of the Equity Trust, sued the Equity Trust on March 9, 1998. Simultaneously, they threatened to obtain a temporary injunction barring the issuance of the preferred stock. They claimed that the preferred stock injured the common shareholders because the preferred holders could vote to block open-ending of the Trust. A reckless act at best.

They also alleged that the size of the offering stated in the N-2 ($10 million) was evidence that the sole purpose of the offering was to block any proposed open-ending of the Trust. They failed to mention that, as stated in the N-2, the offering size was listed as $10 million "solely for the purpose of calculating the registration fee." So again, Ready, Fire, Aim.

Apparently, the lawyers either did not read or did not understand the provisions of the Registration Statement. Instead, they simply parroted claims that had been made in an earlier lawsuit against The Gabelli Global Multimedia Trust, involving a preferred offering that did not contain the special call provision of the Equity Trust preferred.

On May 22, 1998, the shareholders of the Equity Trust re-affirmed a resolution allowing the Board to issue senior securities, including preferred stock. This vote, as the court ruled on June 10, 1998, makes the lawsuit moot. Nevertheless, in an American version of Sokaiya, the plaintiff's lawyers have asked the court to award them over $100,000 in fees and expenses supposedly incurred in bringing their baseless lawsuit.

The Equity Trust will vigorously oppose their request, and will seek to recover the loss in economic value caused by this reckless and capricious lawsuit. Just as American observers have viewed the practice of paying off the Sokaiya as reprehensible, we should also view any payments for this kind of reckless strike suit as reprehensible.