As noted earlier, the Stoneridge v. Scientific Atlanta decision absolved third parties from civil liability despite their knowing participation in fraud regarding a company’s balance sheet. The Supreme Court ruled against Stoneridge, an investment firm, saying that defendants’ actions were too remote to incur civil liability. The decision played a part in plaintiffs dropping $40 billion of lawsuits against third parties in the Enron scandal, investment banks in particular. It appears that, as it stands, as long as a third party did not make a public statement to potential investors on which investors relied in making investment decisions, third parties are not liable, even if they knowingly helped a company misrepresent its financial condition.
Why should progressives care about the rights of shareholders? Public pension funds, union retirement funds, and various other public investments are at stake. These funds, financed by the savings of working people, were major victims of the mortgage-backed securities rip-off that brought us to the current economic crisis. We should care that the regulatory framework is so biased toward investment banks, brokers, accounting firms, law firms, and the ratings agencies that they can aid and abet massive confiscation of public wealth and get away with it. For me, the question is still open: Does this case and related law and litigation shield the likes of Goldman Sachs from civil liability for their part in disseminating shaky securities, knowing that consumer lending standards had collapsed and everyone was looking the other way while securities based on home loans and consumer credit were flooding the world market?
Some useful sources on this case.
Susan Antilla, “Investors Lose Again, Thanks to the Supreme Court,” Bloomberg.com January 18, 2008, www.bloomberg.com;
Greg Stohr, “Enron Investors Suing Banks Spurned by Top U.S. Court (Update 2),” Bloomberg.com January 22, 2008, www.bloomberg.com.