[Sen. Arlen] Specter has proposed an amendment to the pending financial regulatory overhaul that would override the U.S. Supreme Court’s decision in Stoneridge Investment Partners v. Scientific-Atlanta. The amendment (PDF) would allow lawsuits, including class actions, against so-called “aiders and abettors” of securities fraud. Votes on amendments are possible this week.
Bloomberg recently reported that Sen. Arlen Specter (D-PA) “plans to revive a proposal to let investors sue law firms and accountants that help perpetrate fraud…”
This would essentially overturn Supreme Court decisions — Stoneridge Investment Partners LLC v. Scientific-Atlanta Inc. and Central Bank of Denver v. First Interstate Bank of Denver — which suing third parties who had an indirect role in a fraud.
More importantly, though, it’s also a top priority of the trial lobby, who stand to gain large sums of money.
Lewis points out the campaign contributions that have flowed from trial lawyers to Specter.
The National Association of Manufacturers filed an amicus brief that argued for the position eventually reached by the Supreme Court in the Stoneridge case. As Quentin Riegel, the NAM’s vice president for litigation, said in August 2007:
The petitioner in Stoneridge is trying to persuade the High Court to overturn decades of established law and greatly expand potential liability. The law makes clear, and the Supreme Court has affirmed, that one cannot be held liable under Section 10(b) for engaging in deceptive conduct without having breached a duty to investors.
The key issue in this case is primary liability. Without question, a company must give accurate information about its own stock. But the actions of third parties are not covered by this provision of the law. Plaintiffs’ attorneys are not empowered to sally forth beyond the law in an indiscriminate search for deep pockets.
An amendment to reverse (and actually go further in countermanding) the Supreme Court’s ruling in Stoneridge would empower plaintiffs’ attorneys to sally forth in an indiscriminate search for deep pockets. It’s financial regulation by litigation and a bad idea for everyone — except some special-interest lawyers.
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