Corporate Fraud Lawsuits Restricted Enron and Other Shareholders Limited by Court
By Robert Barnes and Carrie Johnson
Washington Post Staff Writers
Wednesday, January 16, 2008; Page D01
The Supreme Court yesterday strictly limited the ability of investors who lost money through corporate fraud to sue other businesses that may have helped facilitate the crime, a decision that could doom stockholder efforts to recover billions of dollars lost in Enron (http://www.washingtonpost.com/ac2/related/topic/Enron+Corporation?tid=in...) and other high-profile cases.
In a victory for business interests in a case they had identified as their most important of the year, the court ruled 5 to 3 to protect corporate partners such as vendors, consultants and others from liability if stockholders cannot show they relied on deception from such "secondary actors'' in making their investment decisions.
"That was a complete victory for the defendants," said Georgetown University law professor Donald C. Langevoort. "The judicial system has become more conservative and more sensitive to economic rights and business interests. This is one of many cases that has restricted the scope of investor recovery."
The case decided yesterday, Stoneridge Investment Partners v. Scientific-Atlanta, involves a scheme by a cable company and two of its vendors that allowed the company to disguise a revenue shortfall and present investors a healthier financial picture. Investors sued the company, Charter Communications, and then went after the two vendors, Scientific-Atlanta and Motorola.
Justice Anthony M. Kennedy, writing for the majority, said stockholders had no knowledge of the actions of the two vendors and thus cannot show those companies' actions influenced investors "except in an indirect chain that we find too remote for liability.''
Kennedy drew from the court's 1994 decision that private suits are not allowed against companies "aiding and abetting" corporate fraud by others. He wrote that Congress the following year determined that "this class of defendants should be pursued by the SEC and not by private litigants,'' referring to the Securities and Exchange Commission.
The case attracted national attention for its similarity to a case filed by investors who want to sue banks and others that allegedly allowed the energy trader Enron to disguise its financial problems before a collapse that produced heavy losses. It carries implications for other investor-motivated suits over alleged corporate fraud, including attempts by shareholders to recover billions of dollars in widening losses in mortgage industry investments.
The decision continued a winning streak for business interests in securities cases that extends back to the court's 2004 case and marked the reemergence this term of the court's ideological split.
Kennedy was joined by the four more conservative members of the court, Chief Justice John G. Roberts Jr., Antonin Scalia, Clarence Thomas and Samuel A. Alito Jr. Embracing an argument advanced by the U.S. Chamber of Commerce, the five said expanding the availability of stockholder suits "may raise the cost of being a publicly traded company under our law and shift securities offerings away from domestic capital markets.''
Justice John Paul Stevens said the majority has a "mistaken hostility'' toward such private actions, allowed by the court long ago under federal securities law. Stevens wrote such suits play an important role in insuring "investor faith in the safety and integrity of our markets.''
He said Congress has acted "with the understanding that federal courts respected the principle that every wrong would have a remedy.''
His dissent was joined by Justices David H. Souter and Ruth Bader Ginsburg. Justice Stephen G. Breyer, who owns stock in Cisco, which now owns Scientific-Atlanta, did not take part in the decision. Roberts had also recused himself from the case, but rejoined it, apparently after taking action to eliminate a financial conflict.
Plaintiffs' lawyers say sometimes the only way for investors to recover money lost because of a company's fraudulent actions is to go after those who helped perpetrate the fraud. They are often the only ones left with money after a scheme collapses.
Sean Coffey, a lawyer who frequently files fraud cases on behalf of shareholders, said the decision "significantly diluted accountability for wrong-doers at the same time that investor confidence in the integrity of our capital markets is suffering yet another body blow, this time from the subprime debacle."
The ruling intensifies pressure on regulators and prosecutors to step up their attack on corporate fraud rather than relying on investor lawsuits to shoulder some of the burden.
Duke University law professor James D. Cox, who follows the government's antifraud initiatives, noted that neither agency sued Scientific-Atlanta or Motorola in connection with the Charter scheme. "The SEC is a nonplayer in these cases," he said.
The SEC had supported weighing in on behalf of plaintiffs in the Stoneridge case, but it was overruled by President Bush and Treasury Secretary Henry M. Paulson Jr., who feared it would hamper business with expensive and frivolous lawsuits.
Corporate lobbyists embraced the ruling.
"This decision ensures that overzealous litigation does not derail the U.S. economy," said Ira Hammerman, general counsel at the Securities Industry and Financial Markets Association. "The wrong ruling would have unleashed a tsunami of damaging side effects, infecting the entire U.S. economy and harming investors."
Dan Newman, a spokesman for the attorneys who represent Enron plaintiffs, said they were analyzing the ruling. The court will consider whether to review the Enron case at its private conference this week.
"We're looking at a variety of options because clearly the innocent victims of the Enron debacle don't deserve to be left holding the bag for the fraud orchestrated by powerful banks," Newman said.
Some legal experts said the ruling, while unfavorable to many plaintiffs, could have been written in a way that was even more damaging. Former SEC commissioner Harvey J. Goldschmid, who joined in a brief supporting the plaintiffs, said that investors may find hope in a distinction that Kennedy appeared to draw between third parties in the securities and financial services industry and those who handle "ordinary business operations."
The opinion, Goldschmid said, may leave room for shareholder lawsuits against underwriters, accountants, lawyers and bankers while forestalling such cases against vendors selling goods.
From FindLaw: Opinion in Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc : http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=000&invol=...
Link to this article including many links: http://www.washingtonpost.com/wp-dyn/content/story/2008/01/15/ST20080115...
Note: Updated Wednesday 17th June 2009 8.00pm Sydney Time. Love For Life does not support harm doing in any shape or form. However, we are supporters of free speech and post articles, documentaries, etc, that represent a wide cross section of ideas. See the Love For Life extensive research library where over 6000 documents, articles and videos are posted: http://loveforlife.com.au/issues. We clearly see the evidence of the destruction to MAN and the earth that has been caused by ALL religions over the centuries and are therefore not supporters of religions, cults, sects or any group that demands conformity of thought, speech or action, or has rules, regulations or rituals that must be followed. Religions, nationalities and cultural "identities" are formed as a result of the brainwashing we receive from childhood. They are part of the tactics the Establishment uses to keep us all divided from one another and fighting one another.
All religions promote discrimination and division, leading to hatred and even violence and murder. None of them have yet to produce a remedy to all the suffering, poverty, unhappiness and discrimination in the world. If any religion truly had the remedy to all the suffering on earth, there would no longer be any suffering. What have Christianity, Islam, Buddhism, Hinduism, Judaism, atheism and the New Age done to end the suffering in the world?
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We have been accused of being anti - Jewish because we had posted an excerpt from James von Brun's book: Kill the Best Gentiles! http://loveforlife.com.au/node/6054 in which he blames Jews for the problems of the world. Obviously this is not our view because of what we have stated above. We do not hate anyone, whatever religion they follow. We are always open to talk to any religious leader or politician and meet with any judge, member of the Bar, experts, academics, educators etc to share the remedy we offer that heals all the divisions between MAN and MAN, and MAN and the EARTH.
Today, a representative of the New South Wales Jewish Board of Deputies is threatening to close the website down, because they have decided it is anti - Jewish and that we promote racism. What has the New South Wales Jewish Board of Deputies done to end the suffering in the world? Can they show that they are concerned with the suffering of ALL men, women and children AND ARE SEEN TO BE DOING SOMETHING ABOUT IT or are they only concerned with Jewish affairs? If so, they, along with all the other religions that only care for their own, are part of the problem, not part of the solution. The man who rang Arthur today was only concerned with Jewish affairs; he was not interested in our intentions or in anybody else, just as most Christians, Muslims, Sikhs, Catholics, etc, are only interested in their own. While we separate ourselves into groups, dividing ourselves from others with rules, regulations, rituals, procedures and conditions, we will never solve our problems.
No matter what we in the Western World Civilisation of Commerce have been promised by our politicians, religious leaders, scientists, educators, philosophers, etc, for the past two hundred years, all we have seen is ever-increasing destruction of men, women and children and the earth. None of the so-called experts and leaders we have been taught to rely on are coming up with a solution and none of them are taking full-responsibility for the fact that they can't handle the problem. All religious books talk about end times full of destruction and suffering but why do we have to follow this program when there is an alternative to hatred, mayhem and death? Why are our leaders following the program of destruction and death rather than exploring the alternatives? It seems that any mainstream politician, priest or academic are only interested in supporting the RULES OF THE DIVIDE, that maintain the haves and the have nots. For 200+ years, 99% of the world population have been so trained to pass on their responsibility for themselves, others and the earth, that the 1% of the population that make up the leaders of the rest of us are making all the decisions leading to the destruction of all of us and the earth. Let's not forget the education system that brainwashes the 99% of the population that we are free and have equal rights while, in fact, we are feathering the nests of those at the top.
At the root of all our problems is self-centredness, an unwillingness nurtured by the Establishment that keeps us concerned only with our own needs rather than the needs of others around us and the Earth. Instead of creating and releasing acts of love for those around us as gifts to benefit them and the earth, we take, take and take, until there is nothing left. The whole point of the Love for Life website is to show people the root of all our problems and to share the remedy. The extensive research library is there to attract browsers and to provide access to information not available through mainstream channels. If the New South Wales Jewish Board of Deputies can, after careful examination of our work, prove that anything we are saying is wrong, we will be happy to accept their proof. If they cannot, and they are still insistent on closing the website down, they will be showing themselves to be traitors to MAN because they are not interested in pursuing any avenue that can end the suffering in the world.
All religions, corporations and organisations that support and maintain the Western World Civilisation of Commerce are part of the problem because our civilisation is a world of haves and have nots, racism, violence, hatred, poverty, sickness, discrimination, abuse, starvation, homelessness, corruption, collusion, vindictiveness, social unrest, arrogance, ignorance, fear, war and chaos. While we support civilisation, we support death and destruction because ALL civilisations that have ever existed are apocalyptic by design.
If we truly want peace on earth and freedom for all, we have to let go of all that which keeps us divided, and come together as MAN, conscious living co-creators of creation. The Love For Life website offers a remedy to the problems we all face in the form of DO NO HARM COMMUNITIES: http://loveforlife.com.au/node/3641 For more details see here: http://loveforlife.com.au/node/6511 and here: http://loveforlife.com.au/node/3385 - We also highly recommend that everyone read the brilliant Russian books called The Ringing Cedars: http://loveforlife.com.au/node/1125 - The Love For Life homepage/front-page also provides lots of inspiring remedy based information: http://loveforlife.com.au - If you want to be kept up to date with our work please register to the Love For Life mailing list here: http://loveforlife.com.au/campaign_list We usually send two postings per month. Presently there are over 5000 registrations reaching over 200,000 readers globally. The website now receives over 2 million strikes per month with June 2009 heading close to (or over) 3 million strikes.
Conscious Love Always
Arthur and Fiona Cristian
Love For Life
17th June 2009