Microsoft has been hit with a new class action lawsuit alleging that the company's Xbox 360 console damages game discs.

"Microsoft improperly and/or negligently manufactured the Xbox 360 console in a manner that causes the expensive game discs ... to be scratched, rendering the games unusable," the suit alleges.

The complaint was filed Monday in the U.S. District Court for Southern California by two residents of the state: Christine Moskowitz and Dan Wood. The suit is seeking not less than $5 million in damages for Xbox 360 buyers affected by the alleged glitch.

Microsoft was slapped with a similar action last week in a Florida court.

In the California court filing, Moskowitz says that in March 2006 she purchased for her son an Xbox 360, along with the popular games Gears of War, Crackdown, and Saints Row. Within a few months, the games bore circular scratch marks and wouldn't work properly, Moskowitz claims. Wood says he purchased an Xbox 360 last December and the unit soon damaged his copy of Tom Clancy's Splinter Cell.

Both plaintiffs claim that the Xbox 360 console damaged their discs and that Microsoft refused to replace the ruined games or pay for them.

Earlier this month, Microsoft acknowledged that a hardware defect in the console was leading to what the company called "an unacceptable number" of general hardware failures. To deal with the problem, Microsoft said it would extend the warranty period on the units by three years, at a cost of between $1.05 billion and $1.15 billion.

The company made no mention of a disc scratching problem, however.

On Tuesday, Microsoft announced that Xbox division head Peter Moore was leaving the company to take a position at games publisher Electronic Arts.

In their lawsuit, Moskowitz and Wood argue that Microsoft's scramble to get a next-generation video game system into the market to compete with those from rivals Sony and Nintendo is at the root of the Xbox 360's problems. "Microsoft's rush to market, while positive for Microsoft, was detrimental to consumers because the Xbox 360 suffered from numerous hardware defects," the suit claims.

Responding to the Florida lawsuit, a Microsoft spokesman told InformationWeek that the company has not received a significant number of complaints about scratched discs, despite the fact that "there are millions of Xbox consoles in use."

The market was relatively small at the time the regulations were established in the 1930s.

But it has grown exponentially in recent years, with more than $2,400bn in municipal securities outstanding – more than the gross domestic product of China, according to the SEC.

Last year alone, more than $430bn in new municipal bonds were issued, about the size of the US defence budget.

Up to another third of the market is held indirectly through money market funds, mutual funds, and closed-end funds.

Yet the SEC's authority is limited to enforcing the anti-fraud provisions of US securities laws in the trading of munis.

Unlike in the corporate bond and other securities markets, the regulator's remit does not extend to assessing disclosures by muni bond issuers to ensure they are transparent.

Last year the city of San Diego was sanctioned by the SEC for having hidden billions of dollars in projected pension and healthcare liabilities to investors in its municipal bonds in the biggest case of such fraud since the late 1990s.

Saying there was an "urgent need" to improve the quality and the availability of disclosure documents, Mr Cox said: "One would think, given the size and importance of this market, and the prevalence of individual investors and older Americans in muni trading and investing, that investors in municipal bonds can rest assured that their interests are fully protected by the same high standards that operate everywhere else in the US capital markets. Not exactly. And not even close."

"The fact is, even large issuers of municipal securities generally don't have policies and procedures to ensure accurate disclosure," Mr Cox told a town hall meeting in Los Angeles.

He suggested that legislation establish a "limited regulatory regime" that would provide that the offering the offering documents and periodic reports provided to investors contain information similar to what they were accustomed to seeing for other securities they own.

It could also mandate that issuers of municipal bonds use US Gaap accounting standards, and give the SEC oversight of the Governmental Accounting Standards Board (GASB).

"A cornerstone of reform in this area would be to ensure that private companies who access the municipal market indirectly by using municipal issuers as conduits will meet the same requirements that municipal issuers themselves must meet," Mr Cox said.

The move is the latest example of attempts by US regulators to update rules governing securities issuance in place since the 1930s. Such rules are among a host of issues blamed for holding back the competitiveness of the US capital markets.

Vito Fossella, a republican congressman from New York, welcomed Mr Cox's initiatives, saying: "The quality and timely disclosure of the financials of muni issuers has been lacking. There needs to be greater transparency to protect investors, stop fraud and prevent a recurrence of the near defaults we've seen in recent years."

Total losses from the subprime mortgage meltdown may be in the order of $50bn to $100bn, according to estimates cited by Ben Bernanke in testimony to Congress on Thursday.

The Fed chairman said:"There clearly will be some significant financial losses associated with defaults and delinquencies on these mortgages."

Mr Bernanke also cautioned Congress against legislating narrowly on China's exchange rate, rather than addressing this in combination with the need for structural reform.

He said the exchange rate was "not a subsidy in the legal sense" but rather the cause of distortions in the Chinese economy that channel resources towards exports rather than production for domestic demand.

Womble Carlyle Standridge & Rice, a national law firm headed in Maryland by former Gov. Robert L. Ehrlich Jr., has signed a lease to move its state offices from Linthicum to downtown Baltimore within the next two months, commercial brokerage Cushman & Wakefield Inc. said Wednesday.

The firm has signed a lease for 17,737 square feet at 250 W. Pratt St., a 24-story, 368,194-square-foot office building owned by Behringer Harvard Funds.

"We are thrilled to have such a prestigious law firm choose 250 W. Pratt Street as its Maryland office location," Tim Jackson, a broker with Cushman & Wakefield, said in a news release. "We look forward to working with Womble Carlyle as they continue to growth their practice in Baltimore."

Terms of the lease were not disclosed.

In addition to Jackson, Cushman & Wakefield brokers T. Courtenay Jenkins and Whitney M. Nye represented Behringer Harvard in the deal. Andy Andrews, a broker with Colliers Pinkard, represented Womble Carlyle.

The lease brings 250 W. Pratt St. to a 95 percent occupancy, leaving just 16,000 square feet vacant. Jenkins said the asking rent for that space ranges from $27.50 to $28.50.

The deal partially offsets plans by another law firm, Semmes, Bowen & Semmes, to move its offices from 250 W. Pratt St. to 25 S. Charles St. The firm, which needs about 60,000 square feet, plans to move in April 2008.

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The appeals court concluded that U.S. District Judge Stanley R. Chesler erred in not allowing the plaintiffs to amend their complaint with additional materials. Chesler had ruled on the grounds that those materials were acquired as a result of a consensual discovery agreement.

The panel said the district judge needs to determine whether the additional materials would affect the lawsuit's merit.

Since it is a shareholder suit, the plaintiffs normally would have been required to first make a demand upon the company's board of directors. But the plaintiffs said such a demand would have been futile at the time they began the lawsuit.

"Of course, we express no opinion about whether the newly acquired facts that are included in the amended complaint will alter this analysis," the 3rd Circuit judges wrote. "The allegations must not simply demonstrate an aloof or negligent board, but nonfeasance that rose to the level of egregiousness or bad faith."

"We look forward to presenting our arguments anew to the district court under the guidance provided by the appellate court today," said Ted Mayer, an attorney for Merck. "Given that today's ruling did not challenge the reasoning of the lower court in previously dismissing the lawsuit, we believe that the outcome should be the same."

A message left with an attorney for the plaintiffs was not immediately returned.