I heartily applaud the “cojones” of these three guys. In a difficult world, fraught with self-serving “professionals”, they have stepped up and said that third-party liability (that means the auditors and bankers!) should be upheld in order to protect investors and the integrity of our financial markets.
After listening to loads of Sarbanes-Oxley bashing this morning at the US Chamber of Commerce conference on domestic regulation’s impact on global markets, I thought there were no thoughtful men left in Washington DC.
All that’s left is for the last honorable man, Don Nicolaisen, to add his signature to the petition!
“The Securities and Exchange Commission may not be taking sides in the anticipated scheme liability case before the U.S. Supreme Court next fall, but former SEC commissioners are.
In a brief filed today, former SEC chairmen Arthur Levitt and William Donaldson and former commissioner Harvey Goldschmid said the court should uphold the idea of scheme liability, in which third-party companies are responsible in fraud schemes even when they make no public statements about the schemes. The former commissioners called the case “one of the most important securities cases” heard by the Supreme Court in years.
Preserving scheme liability “is essential for the protection of the nation’s investors and the integrity of our financial markets,” the brief stated. “We believe that this court’s resolution of the issue of fraudulent scheme liability in the instant case will have a profound effect on the continued deterrence of fraud.”
Further, the brief stated, the SEC cannot possibly police all fraud cases involving third parties, and defrauded investors should be allowed to attempt to recover losses from such third parties. This is especially true, they wrote, because the main party often becomes bankrupt in such fraud cases. “Private cases, so long as they are well grounded, are an important enforcement mechanism supplementing the SEC in the policing of our markets,” the brief stated.
The case, Stoneridge v. Scientific Atlanta, deals with whether third-party companies and vendors can be held liable for helping to inflate profits at a telecommunications company. The brief by the former commissioners, two of whom are Democrats and one a Republican, comes weeks after the deadline, but the court may choose to admit it into the case.
The SEC voted 3-2 to file an amicus brief in the case supporting investors, but the U.S. Solicitor General—who has ultimate authority over which government amicus briefs are filed—declined to file the brief by the deadline last month. Treasury Secretary Henry Paulson said he opposed the amicus brief, and President Bush is also thought to oppose the investors’ argument. A similar case involving investment banks held liable for Enron’s collapse hinges partly upon the outcome of the Stoneridge case, legal experts say.”