Very useful and thorough examination of the media’s coverage of the Stoneridge case, courtesy of Bill Hobbs writing at Newsbusters.org. Hobbs detects the same trend of story angles as we do — call it, oh, media bias — that the case pits big business against cheated investors. Newspapers also like the Enron angle, although it’s certainly not central to the case.
Hobbs provides a quick but clear explanation of the underlying issue. This is a little lengthy, but since he grasps the law better than we…
The case involves Securities and Exchange Act Section 10(b) and SEC Rule 10b-5. As UCLA law professor Stephen Bainbridge explained yesterday, “the Supreme Court held [in the case Central Bank of Denver v. First Interstate Bank of Denver, (1994)], that there was no implied private right of action against those who aid and abet violations of Rule 10b-5. Central Bank thus substantially limited the scope of secondary liability under the rule, at least insofar as private party causes of action are concerned.
The rules as currently interpreted by the courts preclude a private right of action against a non-trading, non-speaking entity that merely enables the commission of an alleged fraud by a public company on its shareholders.
However – and this is a key fact often left out of liberally slanted stories about Stoneridge – the SEC does have the authority to go after such bad actors itself.
The petitioners in the Stoneridge case are seeking to create a new “scheme liability” theory to recast what the law currently deems as secondary conduct as, instead, a primary violation – allowing private lawsuits. If the SCOTUS rules that way it would be a huge boon to the trial lawyers industry.
Hobbs concludes with the key point about the news stories:
Much less prominent in any of the news coverage: the point of view that says allowing private parties to initiate lawsuits under Rule 10b-5 would expose the economy to a massive new surge of lawsuits by lawyers aiming to force companies to settle for huge sums of money. It’s a point of view that says allowing trial lawyers to get rich suing companies into bankruptcy is not really “pro-investor” and certainly not pro-worker.
Such an explosion of litigation is a distinct possibility and one that the media ought to include in its reporting on the case.
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