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Court to hear Enron shareholders’ case

John Dimsdale Oct 8, 2007
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Court to hear Enron shareholders’ case

John Dimsdale Oct 8, 2007
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KAI RYSSDAL: Like all other federal employees, the justices of the Supreme Court had the day off today. One can only hope they were resting up for oral arguments tomorrow…

The marquee case on the docket is listed as Stoneridge vs Scientific Atlanta. But for practical purposes, it really should be called “people who lost money on Enron versus the company’s bankers, lawyers and accountants.”

Marketplace’s John Dimsdale reports it’ll test how far afield the liability for corporate wrongdoing extends.


JOHN DIMSDALE: At issue is whether investors who lost money when a company fraudulently pumped up its profits can sue other firms, banks and accountants who allegedly helped the company do the business deals that swindled shareholders.

The fraud in this case was relatively small — less than $300 million in revenues. But tomorrow’s arguments will serve as a proxy battle for billions of dollars in pending lawsuits against companies that are accused of helping Enron fleece its stockowners.

Former Securities and Exchange Commission Chairman Harvey Pitt agrees with two lower courts that secondary companies are not automatically liable.

HARVEY PITT: Should people who never said anything, who had no interaction with investors, who didn’t do anything to induce them to trade or not to trade, be potentially liable for billions of dollars in damages? The wrong place to make those judgments is in a federal court. The right place is to make it in Congress.

But Louis Bograd with the Center for Constitutional Litigation says the law is clear: People or companies that help other companies create artificial profits bear responsibility.

LOUIS BOGRAD: We’re not talking about secondary liability — we’re talking about primary liability for what the Supreme Court has labeled secondary actors who engage in fraud. If the business community is of the view the statute reaches too far, then they should be the ones going to Congress and saying “Let’s limit the liability of anyone other than the company that is directly dealing with investors” — and we’ll have that battle in that forum.

But business lawyers will argue that if the court makes every company with a connection to corporate wrongdoing liable, the result will be a flood of frivolous lawsuits that will put U.S.-based businesses at a global disadvantage.

In Washington, I’m John Dimsdale for Marketplace.

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