NAM Key Votes Againt Specter ‘Stoneridge’ Amendment

The National Association of Manufacturers just sent a “Key Vote” letter to the Senate opposing the Specter amendment to S. 3217, the financial regulation bill. Gist of the letter:

Manufacturers strongly support the U.S. Supreme Court’s 2008 Stoneridge decision, which protects manufacturers from unfairly being held liable in securities litigation solely because they might have deeper pockets than the company that engaged in securities fraud. The decision also reaffirmed that defendants may not be sued for aiding and abetting another corporation’s violations; only the Securities and Exchange Commission or certain state prosecutors may bring such actions.

The Specter amendment overturns Stoneridge and re-opens the door to frivolous lawsuits. Specifically, it does not require defendants to have “actual knowledge” that their conduct is assisting a fraud; rather, it requires only that defendants have “actual knowledge of the improper conduct underlying the violation.”

Hence, despite recent modifications to the amendment, defendants could still be subject to liability claims even when they have no knowledge that the conduct of their business partners is unlawful.

Exposing manufacturers and other defendants to increased liability claims in securities litigation could chill legitimate commerce, harm the economy, encourage frivolous claims, increase the costs of litigation, encourage coercive settlements and cost jobs.

The NAM uses “key votes” to assess a member of Congress’ voting record on manufacturing issues. The selection of votes is determined by a committee of representatives from member companies.

Earlier posts.

UPDATE (12:15 p.m.): The NAM joined other business associations in this separate letter opposing the Specter amendment. It notes the Senator’s efforts to gain support by modifying the language, but change does not mean improvement, in this case.

SA 3776, as modified, represents the third version of Senator Specter’s attempt to expand private liability under the securities laws. This version of his amendment requires “actual
knowledge of the improper conduct underlying the violation” and of “the role of the person in
assisting in such conduct.” But this formulation does not correct the flaws in his earlier versions.
It continues to require that the defendant have actual knowledge only of the primary violator’s
conduct—the “improper conduct” in the words of the amendment—and does not require that the
defendant know that this conduct was unlawful. This language continues to reflect a superficial
change from the original Specter legislation, which was met with heavy criticism because it
would have extended private liability even to those who provide such assistance “recklessly.”

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