They Should Change the Bill’s Title to ‘Financial Litigation Act’

Sen. Arlen Specter today will take to the Senate floor to argue for his amendment to expand the liability for manufacturers for violations of securities law in which the companies played NO PART. The Senator claims the amendment — his previously introduced bill — would simply overturn the U.S. Supreme Court’s decision in Stoneridge Investment Partners v. Scientific-Atlanta, but in fact, it would simply throw open the courthouse doors for trial lawyers to go after businesses because they have deep pockets.

In 2007, the National Association of Manufacturers filed an amicus brief in Stoneridge Investment Partners v. Scientific-Atlanta, supporting the Eighth Circuit Court’s ruling that reaffirmed the long-held standards of liability in securities fraud litigation.

As Quentin Riegel, the NAM’s vice president for litigation, explained at the time:

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.

Congress made clear its intent to keep Section 10(b) confined to market actors and market-directed activities, not to expand it to manufacturers or others who simply do business with a market actor. If the petitioner prevails in this case, it will open the floodgates for litigation and have a chilling effect throughout our economy.  It also will amount to a reversal of Central Bank, in which the High Court held that only the SEC could bring an action for aiding and abetting a primary securities violation.

Riegel’s description also fit Sen. Specter’s amendment. If it passes, it will open the floodgates for litigation and have a chilling effect throughout our economy. Who supports that?

Ah, Sen. Specter just came to the Senate floor describing his targets as “aiders and abettors” to fraud. No. Not by any normal understanding of the term.

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