Supreme Court Rules Against Investors in Securities Fraud Case
By Robert Barnes
Washington Post Staff Writer
Tuesday, January 15, 2008; 12:10 PM
The Supreme Court today curbed the ability of investors who lost money through corporate fraud to sue businesses that may have helped facilitate the crime.
In what business interests and investors had described as the court's most important financial case of the year, the court ruled 5-3 that secondary actors such as vendors, accountants and lawyers cannot be liable for corporate fraud if investors did not rely on statements from them in making investment decisions.
The case involves a cable company and the suppliers of cable boxes, but it has been seen largely as a stand-in for investors who want to go after banks and others that allegedly allowed the energy trader Enron Corp. to disguise its financial problems prior to a collapse that produced heavy losses for investors. It has implications for other investor-motivated suits over alleged corporate fraud, including attempts by shareholders to recover billions of dollars in widening losses in mortgage industry investments.
In the case decided today, "no member of the investing public had knowledge, either actual or presumed, of respondents' deceptive acts during the relevant times," Justice Anthony M. Kennedy wrote for the majority. "Petitioner, as a result, cannot show reliance upon any of the respondents' actions except in an indirect chain that we find too remote for liability."
Plaintiffs' lawyers say sometimes the only way for investors to recover money lost because of a company's fraudulent actions is to go after those who helped perpetrate the fraud.
http://www.washingtonpost.com/wp-dyn/content/article/2008/01/15/AR2008011501329.html?hpid=topnews