U.S. Supreme Court Screws Investors, Again

If Harvey Pitt, the worst SEC chairman in recent memory, was the Bush Administration's welcome gift to American investors, the yesterday's Supreme Court decision undermining the right of investors to sue crummy companies, was a further reminder of how much investor rights have been eroded in this administration.

The ruling is mind-boggling in its stupidity. MarketWatch observes:

The Supreme Court's majority opinion said Scientific-Atlanta's "deceptive acts were not communicated to the public." Therefore, the petitioner "cannot show reliance upon any of respondents' actions except in an indirect chain that we find too remote for liability."

In other words, a corporate management can engage in the most disgraceful acts involving third parties, but if it didn't put out a press release announcing its chicanery, it gets off the hook. This ruling is particularly toxic for Enron investors, who were victims of a wide swath of wrongdoing reaching far beyond the company.

In June, the high court gurgled forth with two similarly wrongheaded decisions, both of which similarly gave a helping hand to inept corporate management. Needless to say, none of the presidential candidates have mentioned this latest assault on shareholder rights.

Comments

[R. Richard ...:]

Mr Weiss is following what we may hope is now an abandoned idea. That is that the intent of the actors (scienter) is irrelevant, only the results of the actions count.

Mr. Weiss needs to go back and understand how this type of litigation evolved.

Otherwise, if the chief executive of Corp A committed adultry with the personal secretary of Corp B, and in the process gained useful information (as a bonus), his illegal act becomes the basis for legal remedies. Despite its brilliance in this field, Congress has not changed the rule of "reliance" as the measure of exposure to litigation under the various securities acts.

2008 Jan 16 10:28 AM

[the homeles...:]

The only persons the supreme court screwed were the class action lawyers! As a former member of the New York sell side, I can tell you that I have been approached by class action attorneys of my acquaintance after virtually every high profile meltdown, all of them wanting to know if I had clients who held positions in the implosion du jour, and would I of course speak to them recommending becoming part of the action. When you know how the game is played, even favorable rulings leave little or nothing for the aggrieved investors after the attorneys are done and of course it is always the shareholders who ultimately pay pay, so who wins? It is interesting to note that the ruling did not and does not erode investor (read lawyer) rights to bring an action, it simply limits how far back in the supply chain they can sue. Charter was improperly stating their results; Motorola and Scientific Atlanta were suppliers to Charter but not parties to their fraud, and both interestingly were found to have booked their revenues properly. End of story.

2008 Jan 16 10:55 AM

[Roger Cuddy:]

The court's decision was the best for investors. Lending any credence to the class action would have been terrible for the investment community. Unless you consider bringing suit a form of investment you pretty much have to be happy at the outcome.

2008 Jan 16 11:33 PM

[Afthought:]

rcuddy, et al, seem to think that limiting the right to sue is in the investors best interest. I agree. Anything that impedes business violates the first principles of free market capitalism: laissez faire, noblese oblige.

2008 Jan 17 02:07 PM