Senator Chris Dodd, D-Conn., chairman of the Senate Committee on Banking, Housing, and Urban Affairs, has asked President Bush to back the Securities and Exchange Commission in its support of plaintiffs in a so-called securities “scheme liability” case.
The SEC has indicated support for the backed plaintiffs argument brought in a securities fraud case, Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc.. The plaintiff shareholders claim they should be allowed to recover damages not only from the company that committed alleged securities fraud but also from third parties including banks and accounting firms that worked for the company.
Dodd has sent a letter to express his disappointment that the Bush Administration’s Solicitor General Paul Clement has decided not to file a brief with the Supreme Court in support of the views recommended by the SEC in the case.
The case is scheduled to come before the Supreme Court on Oct. 9. Today is the deadline for parties including the Solicitor General to submit briefs in the case.
Dodd also urged the President and Solicitor General Clement not to file a brief in opposition to the views of the SEC.
“It has been reported that the Solicitor General plans to file an amicus brief advocating views inconsistent with the views of the SEC,” Dodd wrote in his letter to President Bush. “If this occurs, it would compound the damage already caused by the Solicitor in declining to advocate a position consistent with the SEC’s. I urge you to take appropriate steps to discourage any such plans.”
At issue in the Stoneridge case is whether a plaintiff should be allowed to receive monetary relief not only from a company that commits securities fraud, but also from a third party that participates in a fraudulent scheme.
Dodd, who is running for the Democrat presidential nomination, wrote to SEC Chairman Christopher Cox in May to inquire whether the SEC would continue its support of “scheme liability” in the Stoneridge case, and to voice his endorsement of the SEC’s position. In a written response, Cox confirmed that the SEC recommended to the Solicitor General that he file a brief in support of the plaintiffs in the Stoneridge case, but Solicitor General Clement has thus far declined to do so.
The Stoneridge case involves allegations that certain suppliers to a cable television company participated in a scheme to boost the firm’s financials. Court observers say that if the investors lose this battle, it could signal that former Enron investors who have lodged a similar complaint against financial firms that consulted that corporation could be blocked in their efforts as well.
Dodd is not alone in his support of the SEC position. Representatives Barney Frank, D-Mass., chairman of the House Financial Services Committee, and John Conyers, Jr., D-Mich., chairman of the House Judiciary Committee, have filed an amicus brief in the case.
In their brief, Frank and Conyers maintain that if the Supreme Court decides against investors, third parties will effectively be immune from suit no matter how reprehensible their conduct.
“It is Congress’ role to set legislative policy. Any arguments that there is a need to change the law should be directed to Congress, not the courts. This will test the intellectual consistency of conservatives who argue against any form of judicial activism,” said Frank.
“The Stoneridge case will have a direct impact on the fate of the Enron victims. More important, however, is the effect the case will have on the integrity of the financial markets in general, and on whether the professionals upon whom we rely to keep our markets honest can be called to account when they betray that trust,” said Conyers.
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