Friday, December 3, 2010

A Novel Way to Sidestep Investor Suits

Via NYT (H/T SimoleonSense). 
The decision by the Supreme Court to even hear the appeal took some by surprise. The court asked the Justice Department to comment, and the department advised against hearing the case. After the court agreed to hear the case, the S.E.C. and the Justice Department urged the justices to rule against Janus.
That the case could get this far may be an indication of the hostility the courts have shown to securities class-action suits in recent years. In 1994, the Supreme Court ruled that private suits — as opposed to suits brought by the S.E.C. — could not be filed against those who merely aided and abetted someone else’s fraud. In a major case decided in 2008, the court said that two companies that had helped a cable company rig its books could not be sued by investors damaged by the fraud.
The issues presented by the Janus case make clear that it is not always easy to distinguish whether someone is a primary player in a fraud, or simply helped. That distinction is, however, critical under the Supreme Court precedents.
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