IN USA TODAY, an op-ed on Stoneridge Investors v. Scientific Atlanta by NAM President John Engler. The U.S. Supreme Court hears oral arguments in the case Tuesday.
Since the first federal securities legislation in the 1930s, the law has drawn a line between those who commit fraud and everyone else. If you violate federal rules, you may be the target of a private lawsuit. Not your outside accountants or financial advisers. Not any company with which you did business. You. Without this clear line, unscrupulous lawyers would have a hunting license to stalk any company that did any business with any publicly traded firm found guilty of violating securities law, if the company could in any way be charged with knowing, sort of knowing or “recklessly” not knowing of the fraud. Now in the StoneRidge case, named for an investment company that is the lead plaintiff, the court is asked to erase this line.
The securities-strike-suit bar has waged a full-blown public relations campaign, with too little critical attention from the media. They stand for investors, they say, as if it helps investors to wrap businesses in unending securities lawsuits.
This amazing idea is almost the exact opposite of reality, as a long line of legal and financial scholars has found. One notes, “Nearly all the money paid out as compensation in the form of judgments and settlements comes, in one way or another, from investors themselves.” Another observes that settlements “often benefit former shareholders at the expense of current ones.” And a former chief economist for the Securities and Exchange Commission (SEC) says: “When a company pays a large (supposedly pro-investor) judgment, that money comes out of the hide of existing shareholders.”
Simply put, expanding private litigation will increase, not diminish, burdens on investors. For what purpose? The SEC has full enforcement authority against so-called secondary violators, can compensate investors and exercises prosecutorial discretion.
The NAM’s news release and amicus brief about Stoneridge are online here.
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